Q.Distinguish between the cardinal and ordinal approaches to utility analysis.

The cardinal approach assumes satisfaction can be measured in exact numerical units, while the ordinal approach only assumes a consumer can rank different combinations by preference.

Marshall's cardinal utility approach assumes that the satisfaction a consumer derives from a commodity can be expressed as a precise numerical quantity, measured in imaginary units called utils, in the same way physical quantities like weight or length are measured. This allows utility to be added, subtracted and compared arithmetically across goods, and underlies the Law of Diminishing Marginal Utility and the Law of Equi-Marginal Utility.

Hicks and Allen's ordinal utility approach, developed later, questioned whether satisfaction can really be measured in exact numbers, since there is no real-world unit of satisfaction. Instead, it assumes only that a consumer can rank different combinations of goods — saying combination A is preferred to B, or that A and B give equal satisfaction — without needing to say by how much. This weaker, more realistic assumption underlies indifference curve analysis.

Students often say the ordinal approach does not use utility at all — this is wrong; it still uses the concept of utility/satisfaction, it simply does not require satisfaction to be numerically measurable, only rankable.