Each indifference curve is a set of points, each representing a combination of quantities of two goods or services with which the consumer is equally satisfied. The further a curve is from the origin, the greater the benefit. The concept of ordinal utility was first introduced by Pareto in 1906. [1] Definition: The ordinal utility approach is based on the fact that the utility of a product cannot be measured in absolute quantities, but it will be possible for a consumer to tell subjectively whether the product is more or less or equally satisfied compared to another. Debreu (1960) showed that this property is also sufficient: that is, if a preference relation satisfies the double extinction property, it can be represented by an additive utility function. [7] The ordinal approach to consumer benefit analysis indicates that utility or satisfaction cannot be measured in exact numbers, but can only be classified or put in order. This approach argues that pleasure is a completely psychological element and cannot be expressed in numbers. In the technique of ordinal utility analysis, goods are classified only in terms of more or less preferential status, but no attempt is made to determine the extent to which one good is preferred over another. The ordinal utility can reflect only one order. The theory of ordinal utility of consumer behavior is generally called indifference curve analysis because indifference curves are its main analytical tool. Here, we briefly discussed the concept and assumptions of ordinal benefit analysis. It is difficult to measure the benefits.

This is due to the fact that the benefits that consumers derive from a product depends on several factors, such as changes in consumer tastes and preferences, mood, etc. These factors cannot be calculated when measuring cardinal utility. An additive preference relation can be represented by many different additive utility functions. However, all these functions are similar: they not only reinforce monotonic transformations of each other (like all utility functions representing the same relationship); They amplify the linear transformations of each other. [7]: 9 In short, John Hicks and Roy Allen first wrote a paper in 1934 mentioning ordinal utility. The measurement term for cardinal and ordinal utility is utils or ranks. Utils is the unit of utility and ranks determine the preference of a product over other products on the market. According to classical economists, utility is a quantitative concept that can be measured in terms of numbers. Therefore, they introduced the concept of utility measurement with a cardinal approach. According to this concept, utility can be expressed in the same way as weight and height. Economists, however, lacked a precise unit of utility. Therefore, they derived a psychological unit called “util”.

Util is not considered a standard unit as it varies from person to person, place to place, and time to time. For example, if a person allocates 30 utensils to a pizza and 20 utensils to a chowmein, we can understand that pizza has twice the capacity to satisfy what people want. The theory is applied to a single commodity, where the utility of a single commodity is treated independently of other commodities. This article is a ready-made accounting term for all students who want to learn the difference between cardinal utility and ordinal utility. According to P.A. Samuelson and William D. Nordhaus, “in the ordinal utility approach, consumers need only determine their preferential classification of lots of goods.” In the analysis of ordinal utility, it is observed that one individual prefers one choice to another. The preference can be sorted from the most satisfactory to the least satisfactory. Only order is important; The size of the numeric values is not important, except that they determine the order. To understand the indifference curves, it is best to make the assumptions first. The approach of the indifference curve as an ordinal utility analysis tool is based on the following assumptions: Thank you very much for that. But I wonder which benefits approach is treated as a better tool for analyzing consumer behavior.

For each utility function v, there is a unique preference relation, represented by v. However, the reverse is not the case: a preference relation can be represented by many different utility functions. The same preferences could be expressed as any utility function, which is an increasing monotonic transformation of v. For example, when William Stanley Jevons, Leon Walras, and Alfred Marshall developed all the utility concepts normally tied to market prices. However, proving the exact measure of benefits has proven difficult to achieve. Modern demand theory uses a logical tilt to explain how the household decides on its economic decisions and purchases. This is called the indifference curve analysis of ordinal utility analysis. The indifference curve approach was originally developed by an Italian economist Vilfredo Pareto, who was the first economist to draw the indifference curve. Subsequently, it was fully developed by British economists JR Hicks and RGD Allen.

Cardinal Utility is the utility in which the satisfaction obtained from consuming a product can be expressed numerically. Since utility is not a standard unit for measuring utility, many economists, including Alfred Marshall, have suggested measuring utility in terms of the money that consumers are willing to pay for a commodity. If each rupee is equal to 1 utility, a pizza worth Rs 30 has 30 utensils and a min chow worth Rs 20 to 20 utilities. Therefore, the consumer who consumes hamburgers will get an advantage of 30 utilities, and those who consume chow min will get an advantage of 20 utilities. An ordinal measure can be thought of as a top-to-bottom, good-to-bad, top-down list and is often based on subjective/individual judgments of elements. The ranking or order of usefulness allows a relative comparison. The relative comparison means, for example, that the first is more than the second and the second more than the third, but how much more is not known. The ordinal utility approach is alternative and superior to the cardinal approach of benefit analysis. The ordinal utility approach uses the indifference curve to analyze consumer behavior. Therefore, the indifference curve approach to benefit analysis was also mentioned.

The ordinal approach to consumer utility states that benefits/satisfaction cannot be measured in exact numbers, but can only be ranked or put in order. This approach argues that benefit/satisfaction is a completely psychological element and cannot be expressed in cardinal numbers. In ordinal benefit analysis, it is observed that one individual prefers one choice to others. Preferences can be well arranged from the outermost fill to the smallest fill. Only order is important; The size of the numeric values is not important, except that they determine the order. Utility is a psychological phenomenon; It implies the satisfactory power of a good or service. It differs from person to person as it depends on a person`s mental attitude. The measurability of benefits is still controversial. The two main theories of utility are cardinal utility and ordinal utility. Many traditional economists believe that utility is measured quantitatively, such as length, height, weight, temperature, etc. This concept is called the concept of cardinal utility. Another difference between ordinal utility and cardinal utility is that the former is based on the analysis of the indifference curve and the latter is based on the evaluation of marginal utility.

Customers are the end user of goods or services and the manufacturer`s sole purpose is to satisfy their needs and wants. However, the degree of satisfaction differs from one individual to another and their mental position. The measurement of this benefit and satisfaction has always been a topic of discussion. If these conditions are met and the set X {displaystyle X} is finite, it is easy to create a function u {displaystyle u} representing ≺ {displaystyle prec } by simply assigning a number corresponding to each element of X {displaystyle X}, as shown in the first paragraph. The same is true if X is countably infinite. In addition, it is possible to inductively construct a descriptive utility function whose values are in the range ( − 1 , 1 ) {displaystyle (-1,1)}. [4] The modern economist, especially Hicks, applied the concept of ordinal utility to study consumer behavior. He introduced an analytics tool called “Indifference Curve” to analyze consumer behavior. An indifference curve refers to the location of points, each having different combinations of two substitutes that offer the same level of satisfaction and benefit to the consumer.