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Cardinal and Ordinal Utility Analysis| Microeconomics

The priceCardinal Utility Analysis
Cardinal Utility Approach | Microeconomics
Management Notes

What do you mean by Cardinal Utility Approach?

Cardinal Utility Analysis: Cardinal Utility approach is the method of analyzing utility which believes that utility is a quantitative concept i.e, the utility can be measured numerically. Its unit of measurement is Utils.

What are the assumptions of Cardinal Utility Analysis?

The assumptions of cardinal utility analysis are as follows:

  • The consumer is rational.
  • The utility can be measured in the cardinal numbers.
  • The marginal utility of money remains constant.
  • Units of consumption are suitable.

What is price effect and income effect?

The price effect is defined as the change in consumer equilibrium with the change in the price of a commodity. The purchase of goods will be affected by the change in the price of a commodity, Keeping other things constant.

What is a price consumption curve?

Price consumption curve is the locus of different equilibrium points obtained due to a change in the price of a commodity. In other words, PPC is the curve that joins different equilibrium points of price effect.

What are the conditions of consumer equilibrium?

The conditions required for the consumer’s equilibrium according to the ordinal utility approach are as follows:

  • Price line must be tangent to the indifference curve.
  • The indifference curve should be convex to the origin.

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