Cardinal And Ordinal Approaches To Consumer Behaviour Pdf

cardinal and ordinal approaches to consumer behaviour pdf

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On Ordinal Utility, Cardinal Utility and Random Utility

Definition: The Cardinal approach to Consumer Equilibrium posits that the consumer reaches his equilibrium when he derives the maximum satisfaction for given resources money and other conditions. A consumer is said to be highly satisfied when he allocates his expenditure in such a way that the last unit of money spent on each commodity yields the same level of utility. The concept of how consumer reaches his equilibrium can be further comprehended through the one-commodity model and multiple commodity model. In one commodity model, the consumer equilibrium is determined when he consumes a single commodity while in the multiple commodity model, the consumer equilibrium is determined when he consumes two or more commodities. But, however, in real life, the consumer consumes a large number of goods and services. This model talks about how the consumer consuming multiple commodities reaches his equilibrium. It is assumed that the consumer has a limited money income and that the utility derived from multiple commodities are subject to diminishing returns.

Cardinal and Ordinal approaches to Consumer’s behavior

Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our User Agreement and Privacy Policy. See our Privacy Policy and User Agreement for details. Published on Aug 14, Consumer Behaviour is the study of how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants.

The utility is a psychological phenomenon; that implies the satisfying power of a good or service. The measurability of utility is always a matter of contention. The two principal theories for the utility are cardinal utility and ordinal utility. Many traditional economists hold the view that utility is measured quantitatively, like length, height, weight, temperature, etc. This concept is known as cardinal utility concept. Take a read of the article to know the important differences between cardinal and ordinal utility.

The price of a product depends upon the demand for and the supply of it. But among these determinants of demand, economists single out price of the good in question as the most important factor governing the demand for it. Cardinal utility analysis of demand is based upon certain important assumptions. As we shall see later, cardinal utility analysis has been criticised because of its unrealistic assumptions. The exponents of cardinal utility analysis regard utility to be a cardinal concept.

Cardinal and Ordinal Approaches to Consumer Behaviour

Though the Random Utility Model RUM was conceived entirely in terms of ordinal utility, the apparatus through which it is widely practised exhibits properties of cardinal utility. The adoption of cardinal utility as a working operation of ordinal is perfectly valid, provided interpretations drawn from that operation remain faithful to ordinal utility. The article considers whether the latter requirement holds true for several measurements commonly derived from RUM. In particular it is found that measurements of consumer surplus change may depart from ordinal utility, and exploit the cardinality inherent in the practical apparatus. This is a preview of subscription content, access via your institution.

Based on the notion of a universal hierarchy of human needs Dr Abraham Maslow, a clinical psychologist formulated a widely accepted theory of human motivation. Consumer choices Chapter 3 Consumer Behavior. In industries like fashion or food personal opinions are especially powerful. Consumer Behaviour is the study of how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants. Consumers across the globe have responded to the crisis and its associated disruption to normal consumer behaviors by trying different shopping behaviors and expressing a high intent 65 percent or more to incorporate these behaviors going forward.

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Cardinal and Ordinal Utility

This paper challenges the conventional opposition, or distinction, between consumer behaviour theory and practice. In other words, consumer behavior is the study of how the consumers, make purchase decisions and what are the underlying factors that influence such decisions. The holiday that the consumer buys will probably provide the consumer with.

Utility is the satisfaction that a consumer derives by consuming a commodity. Thus, it is that property of a commodity that satisfies the wants of the consumers. Utility is a subjective concept and its perception varies among different individuals. In fact, the extent of desire for a commodity by an individual depends on the utility that he associates with it. Cardinal Approach to Utility : The Cardinalist school asserts that utility can be measured and quantified. It means, it is possible to express utility that an individual derives from consuming a commodity in quantitative terms. Thus, a person may express the utility he derives from consuming an apple as 10 utils or 20 utils.


Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be expressed numerically. Ordinal utility states that the satifaction which a consumer derives from the consumption of good or service cannot be expressed numerical units.


Cardinal Approach to Consumer Equilibrium

Summary: Cardinal utility gives a value of utility to different options. Ordinal utility just ranks in terms of preference. Cardinal Utility is the idea that economic welfare can be directly observable and be given a value. For example, people may be able to express the utility that consumption gives for certain goods.

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Глава Отделения криптографии АНБ была не просто женщиной, а очень привлекательной женщиной. - Да нет, - замялся.  - Я просто… - Сьюзан Флетчер.

Consumer’s Behaviour: Cardinal Utility Analysis (Explained With Diagram)

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