Distinguish between the Cardinal and Ordinal approaches to utility analysis.

Exercises · Q12

Q. Distinguish between the Cardinal and Ordinal approaches to utility analysis.

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Basis	Cardinal Utility Approach	Ordinal Utility Approach
Proposed by	Alfred Marshall	J. R. Hicks and R. G. D. Allen
Measurability of utility	Assumes utility can be measured precisely in numerical units ("utils")	Assumes utility can only be RANKED — more, less, or equal — never measured in exact numbers
Main tool	Total Utility / Marginal Utility schedule	Indifference curve / indifference schedule
Governing law	Law of Diminishing Marginal Utility	Law of Diminishing Marginal Rate of Substitution
Equilibrium condition (two goods)	$\dfrac{MU_x}{P_x}=\dfrac{MU_y}{P_y}$	$MRS_{xy}=\dfrac{P_x}{P_y}$
Realism	Less realistic — satisfaction is not objectively countable	More realistic — most people can rank preferences even without assigning numbers

Q.Distinguish between the Cardinal and Ordinal approaches to utility analysis.