Difference Between Cardinal and Ordinal Utility

Table of Contents

What is Cardinal Utility?

Cardinal utility is an economics theory that the level of satisfaction a consumer gets after the consumption of a good is measurable. The unit of this measurement is utils. The theory of marginal says that the unit of measurement for the consumption of a good is the cost.

That means the measurement of satisfaction that a person gets after consuming a product is based on the cost of that product. The level of satisfaction after increased consumption is determined by diminishing marginal utility, which says that the more a person consumes something, the less they are willing to pay for additional units.

Cardinal utility assumes that there is an absolute standard by which we can measure how good something is. The theory says that the usefulness of a good is dependent on its quantity, and assigns a number to the utility of a product or service.

An example can explain it better. If you went to a restaurant at a friend’s invitation and found him having ordered water and wine, the cardinal utility would be measured based on how much water or wine you have consumed so far. If water costs 20 dollars and wine 120 dollars, the utility would be either 20 dollars or 120dollars.

What is Ordinal Utility?

The ordinal utility is a measure of the relative satisfaction that a consumer obtains after consuming goods. It does not measure how much utility is obtained from a product, but rather how much higher or lower the level of satisfaction is when compared with another product.

Economists define ordinal utility as the level of satisfaction a consumer obtains after consuming a certain product is not absolute, but relative to the satisfaction obtained from other products.

According to this theory, the usefulness of a good is dependent on how it ranks in comparison to other goods.

For example, if you had two products, water and soda, their ordinal utility would be measured based on which one tastes better to you at any given time. You might naturally prefer soda at the beginning, but after drinking it, its preference goes down to a level where water becomes more attractive.

This means that it is possible for a consumer to be more satisfied with one purchase than another, even if the total utility of both purchases is equal. Ordinal utility can be used to determine which product is better for a consumer because it considers the individual’s personal preferences and values.

Difference Between Cardinal Utility and Ordinal Utility

Cardinal utility is the degree of satisfaction a consumer gets after consumption of a good, measured in utils. The basic principle behind this idea is that there is no such thing as getting the same satisfaction from consuming two different goods. It’s possible to have a much higher utility in drinking water than it is in eating chocolate, for example.

The ordinal utility, on the other hand, is based on the ranking that consumers give to products according to their preferences. It measures how much better off an individual will be if he or she switches from one product to another.

Comparison Between Cardinal Utility and Ordinal Utility

Parameter of Comparison	Cardinal Utility	Ordinal Utility
Utility	It is quantifiable	It is not quantifiable
Theory	It was developed by Dr. Alfred Marshall	It was developed by Hicks and Allen
Logic	It does not make sense because it is not possible to measure how satisfied someone is.	It is logical – you can tell what someone’s preferences are.
Measurement	It is measured in units called utils based on money terms.	It is measured by ranking the order of preferences.
Objectivity	Its measurement is objective.	It is subjectively evaluated because different individuals have different preferences.

What is Cardinal Utility?

What is Ordinal Utility?

Difference Between Cardinal Utility and Ordinal Utility

Comparison Between Cardinal Utility and Ordinal Utility

References