What is The Ordinal Utility Approach and what are Its Other Facets?
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Before you get to the core of any subject, especially as that of economics, it is important to ensure that you have a complete idea of its core concepts. With manuals as ordinal utility homework answers, you can get a complete idea of its base.
8 Basic queries associated with this subject:
- What is Utility?
In Economics, the term “Utility” represents the total satisfaction derived from the consumption of a certain amount of units of a goods or a service. It is ascertained that the consumption of a unit of goods or service results in the production of corresponding units of utility in the consumers.
Such units of utility vary as per the units of the concerned goods and service consumed. The utility derived from a product determines the price of the product in the market as well as its demand and supply.
- What are different approaches to measuring Utility?
There are two major ways to measuring Utility derived from the consumption of goods and services. They are:
As per the classical economists, utilities derived from the consumption of such goods and services can be measured quantitatively. This approach of measuring utility in numbers is known as the Cardinal Approach. It is measured through the use of variables known as the Total Utility (TU) and the Marginal Utility (MU).
Total Utility measures the total satisfaction received from the total units of goods or services received while Marginal Utility measures the additional utility derived from every additional unit of goods or services consumed.
The Total Utility (TU) derived from the consumption of certain units of goods and services is infinite. The Marginal Utility (MU) increases as the person consumes every additional unit of the goods and services, but after it reaches the saturation point Marginal Utility starts falling as the person concerned is full. The Cardinal Approach is also known as the Quantitative Approach.
As per the modern economists, utilities derived from the consumption of such goods and services cannot be measured in numbers. The economists believe that the satisfaction received from the consumption of goods and services is a psychological behavior and hence cannot be quantified into numbers.
So to replace the Cardinal Approach, they came up with the ordinal utility homework answers to measure the utility derived from the consumption of the different units of goods and services.
This approach relies on the behavior and satisfaction level of the individual consumers and can vary from one individual to another. The ordinal utility homework answers are an important factor in Consumer Behavior Analysis.
- What is the Ordinal Approach?
The modern economists believing that the human psychological behavior of deriving satisfaction from the consumption of goods and services cannot be valued in numerical terms came up with the ordinal utility homework answers. This approach is also known as the Indifference Curve Approach. Consumers cannot calculate the utility derived from their consumption of goods and services but can declare their preference of one product over another. This is used to calculate the equilibrium of the consumer.
The Consumer’s Equilibrium is used to calculate his total equilibrium or satisfaction. The tools used to calculate the equilibrium level of the consumer are:
- The Indifference Curve
- The Indifference Map
- The Budget or Price Line
- What are the various assumptions for the Ordinal Utility Approach?
The Ordinal Approach is based on the following assumptions:
- Rationality of the consumer
The consumer is assumed to be a rational individual who aims for achieving the maximum satisfaction from the consumption of various units of goods and services bought from his total income.
- Transitivity and Consistency of the consumer’s choice
The consumer is assumed to be consistent in his or her choice of a particular goods and service for a definite period of time. The term transitivity means that if the consumer has the preference for product A over product B and preference of product B over product C then he between product A and product C he will choose product A.
The assumption of the Ordinal Utility means that the consumer choice in a particular goods or service can be expressed qualitatively and not quantified in terms of cardinal numbers. Manuals as ordinal utility homework answers will help you get a complete idea.
- Diminishing Marginal Rate of Substitution
The Diminishing Marginal Rate of Substitution is an important concept to understand the Indifference Curve. In this concept, the diminishing marginal rate of substitution represents the choice of the consumer to replace one unit of a commodity with another unit of a different commodity to ensure that the consumer is achieving total satisfaction from the consumption of various goods and services.
It is assumed that the goods and services consumed by the consumer are divisible into units and facilitate the consumer in the maximization of their satisfaction derived from the consumption of such goods and services.
- Non-Satiety of the Consumer
It is assumed that the customer cannot be satisfied easily and hence a large number of goods and services should be provided to him or her.
- Substitutability of the goods and services
The goods and services consumed by the consumers must be something that can be easily substituted with another goods or services providing a similar level of satisfaction from its consumption. This allows the Consumer to choose from a variety of goods and products and to use their income in the best possible manner.
- What is the Indifference Curve and Analysis?
The Indifference Curve is the locus of all the points of satisfaction derived from the consumption of two commodities with varying units. Each such point represents the satisfaction derived from the consumption of varying units of the two commodities as demarcated by the X-axis and the Y-axis on a graph.
The Indifference Curve Analysis is the study of the Indifference Curves to ascertain the total satisfaction derived and analyzed the various combinations of the two commodities to achieve the maximum satisfaction from the two commodities with a certain level of income. The Indifference Curve is an important tool in the Ordinal Utility Approach. This is also known as the is o-utility curve or equal utility curve.
- What is the Indifference Map?
The Indifference Map is an important part of the Ordinal Utility Approach and is a collection of Indifference Curves where each higher Indifference Curve represents a higher level of satisfaction while a lower Indifference Curve represents a lower level of satisfaction. A higher Indifference Curve is made possible by a higher level of income which makes it possible for the consumer to buy more units of the two commodities at the same level of prices or it could also represent the fact that the consumer is able to buy the same units for a higher or lower price level for the two commodities.
- What are the properties of an Indifference Curve?
The Indifference Curve is used to calculate the qualitative aspect in the ordinal utility homework answers. Here are a few properties of an indifference curve:
- The curve is convex to the origin and sloped downward from the left to the right.
- Each Indifference Curve represents a level of satisfaction between two commodities and hence no two Indifference Curves can intersect each other.
- The ends of the Indifference Curves should not touch either of the X-axis or the Y-axis.
- The Indifference Curves should not be parallel to each other.
- Define the Budget Line
The Budget Line or as it is commonly known as the Price Line is the representation of the different combination of the commodities that the consumer can buy at the prevalent market prices and within the consumer’s income range. It is another important part of the ordinal approach and helps in identification of the consumer’s equilibrium.
For details, you can check out manuals as ordinal utility homework answers.