Cardinal and Ordinal Utility
Utility is the measure of satisfaction derived from consuming a certain good or service. There are two basic types of utility: cardinal and ordinal. Cardinal utility assigns a numerical value to each unit of satisfaction, while ordinal utility ranks the units of satisfaction without assigning a numerical value.
Numerical Values: Cardinal Utility
Cardinal utility assigns a numerical value to each unit of satisfaction. This numerical value is a measure of how much satisfaction is gained from consuming a certain good or service. This type of utility is commonly used in economics, as the numerical values are often used in the calculation of consumer demand for a certain good or service.
Ranking: Ordinal Utility
Ordinal utility is a type of utility that ranks the units of satisfaction without assigning a numerical value. This type of utility is used to measure a person’s preferences for various goods and services. The rankings can be used to determine a person’s ideal combination of goods and services, or to compare the relative satisfaction gained from consuming different goods and services.
Differences
The main difference between cardinal and ordinal utility is that cardinal utility assigns numerical values to units of satisfaction, while ordinal utility ranks the units of satisfaction without assigning numerical values. Cardinal utility is commonly used in economics, while ordinal utility is used to measure a person’s preferences for various goods and services.
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