Utility
- It is the want satisfying power of a good.
- Utility is not necessarily useful.
- Utility does not always mean pleasure.
- Utility is subjective: The same good can have different utility to different people.
- It is relative: Utility differs from time to time, and from place to place.
- Utility diminishes: “law of diminishing marginal utility”
Difference between Cardinal and ordinal approach of utility
|
Cardinal Utility |
Ordinal Utility |
|
Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of goods or services can be measured numerically. |
Ordinal utility states that the satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically. |
|
It measures the utility objectively. |
It measures the utility subjectively. |
|
Cardinal utility is less realistic, as quantitative measurement of utility is not possible |
The ordinal utility is more realistic as it relies on qualitative measurement. |
|
The concept of cardinal utility is based on marginal utility analysis. |
The concept of ordinal utility is based on indifference curve analysis. |
|
The cardinal Utility is measured in terms of Utils, i.e. units of utility. |
The ordinal utility is ranked in terms of satisfaction. |
|
This theory was applied by Prof. Marshall |
This theory was applied by Prof. J R Hicks |
|
Example: Sam, when he eats pizza, gives him 60 utils of satisfaction whereas a burger gives only 40 utils. |
Example: Sam gets more satisfaction from eating pizza compared to a burger. |