Ordinal theory is also known as neo-classical theory of consumer equilibrium, hicksian theory of consumer behavior, indifference curve theory, optimal choice theory this approach also explains the consumer's equilibrium who is confronted with the multiplicity of objectives and scarcity of money income. This video illustrates the process of determining how a consumer achieves equilibrium under the cardinal utility theory approach. Cardinal utility of consumer behaviour: meaning of cardinal utility: cardinal utility means the satisfaction of a consumer can be measured in terms of numbers prof that unit is known as utils''marshallian to define consumer equilibriummarshallian defines cardinal utility as. Analysis of consumer behavior: cardinal utility approach 00:02:14- 00:07:48 assumptions of the cardinal utility approach consumer's equilibrium: cardinal utility approach 00:07:49 - 00:18:13.
Under both the cardinal and weak ordinal versions, neoclassical economists had assumed that a true cost-of-living index would show the minimum change in expenditure needed to maintain an individual at the same level of economic welfare in. Required: show that the equilibrium condition and consumer equilibrium under both cardinal and ordinal utility theory are identical they both assume that the consumer is rational consumer equilibrium, under cardinal utility theory, is achieved when the sufficient condition is met. Show that the equilibrium condition and consumer equilibrium under both cardinal and ordinal utility theory are identical they both assume that the consumer is rational consumer equilibrium, under cardinal utility theory, is achieved when the sufficient condition is met.
Consumer's equilibrium through utility: a consumer is one who buys goods and services for his/her personal satisfaction in theoretical terms, consumer's equilibrium is achieved at a point when he/she reaches to the maximum level of his/her satisfaction, given resources and other conditions. The theory of consumer behavior built on both the cardinal and ordinal approach is attribute d to modern economists such as alfred marshal, j r hicks and r g allen. Consumer equilibrium is the point where consumer attains highest level of satisfaction there are two conditions of equilibrium under ordinal approach 'budget line is tangent to the highest.
The consumer is equilibrium at point 'e', where the initial budget line is tangent to indifference curve ic now, suppose the price of commodity 'x' falls the consumer's equilibrium shifts to point 'f on the new budget line and higher indifference curve ic 1. The ordinal utility theory or the indifference curve analysis is based on four main assumptions (i) rational behavior of the consumer: it is assumed that individuals are rational in making decisions from their expenditures on consumer goods. Recently, cardinal utility approach to the theory of demand has been subjected to severe criticisms and as a result some alternative theories, namely, indifference curve analysis, samuelson's revealed preference theory, and hicks' logical weak ordering theory have been propounded.
Primarily cardinal utility approach has 5 assumptions 1 rationality: the consumer is rational about his spending 2 cardinal utility: the utility/satisfaction can be measured in cardinal nos like. Ordinal utility theory consumer aims to maximize his utility subject to income and prices under conditions of certainty factors affecting consumer equilibrium. Under cardinal utility theory, the sign of the marginal utility of a good is the same for all the numerical representations of a particular preference structure the magnitude of the marginal utility is not the same for all cardinal utility indices representing the same specific preference structure.
Cardinal utility analysis a) assumptions of cardinal utility analysis b) law of diminishing marginal utility c) law of equal-marginal utility 11 assumptions of cardinal utility analysis 1. The ordinal utility theory claims that it is only meaningful to ask which option is better than the other, but it is meaningless to ask how much better it is or how good it is all of the theory of consumer decision-making under conditions of certainty can be, and typically is, expressed in terms of ordinal utility. Cardinal utility theory approaches consumer demand from the standpoint of consumer utility, wherein demand is dependent upon factors of utility, price, income, substitutes and complementary goods.