Cardinal and ordinal utility a theory of consumer bheahviour

Cardinal and Ordinal Utility: A Theory of Consumer Behaviour

1. Cardinal and Ordinal Utility
A Theory of Consumer Behaviour
Dr.DhireshKulshrestha
Associate Professor (Economics)

2. Theories of Consumer Behaviour
•There are two theoriesthat seek to explain consumer behavior.
•The Cardinal Approach : Which explains utility is objectively
measurable.
•The Ordinal Approach : Which explains consumer can rank their
preferences.

3. The Cardinal Approach (Utility theory)
•The utility theory explains consumer behavior in relation to the
satisfaction that a consumer gets the moment he consumes a good.
•When we speak of utility, we refer to the satisfaction or benefitsthat a
consumer derives of his consumption.

4. 2
•This theory assumes that satisfaction can be measured.
The unit of measures of utility is called utils.

5. Total Utility(TU)
and
Marginal Utility (MU)
•Total Utility (TU) : It is the total amount of satisfactionor pleasure a
person derives from consuming some specific.
TU = TU1 + TU2 + TU3 + TU4 + TU5 +…..TUN

6. Marginal Utility (MU)
•It is the extra satisfaction a consumer realizes from an additional unit
of that product.
•In other words, it is an additional satisfaction that an individual derives
from consuming an additional unit of a good or services

7. 2
Formula:
MU = Change in total unit / change in quantity
MU = TUN-TUN-1/ QN-QN-1

8. For example (TU and MU)
(Table 1) MU = TUN-TUN-1/ QN-QN-1

9. Analysis of Table 1

10. Total Utility (TU)
(As per Table 1)

11. Marginal Utility (MU)
(As per Table 1)