Answer to Question #48719 in Microeconomics for shafyan
The utility approach to consumer demand theory is based on the assumption of cardinal utility, while the indifference curve approach is based on ordinal utility. Which approach is better? Why?
Cardinal utility states that the satisfaction that the consumer derives by consuming goods and services can be measured with numbers. Ordinal utility states that the satisfaction that the consumer derives from the consumption of goods and services cannot be measured in numbers. Rather, ordinal utility uses a ranking system in which a ranking is provided to the satisfaction that is derived from consumption. While cardinal utility is a quantitative measure, ordinal utility is a qualitative measure. In cardinal utility, it is assumed that consumers derive satisfaction through consumption of one good at a time. However, in ordinal utility it is assumed that a consumer may derive satisfaction from the consumption of a combination of goods and services, which will then be ranked according to preference. So, as ordinal utility is a qualitative measure, it is seemed to be better.