Utility is one of the most essential ideas in economics. It tells us how much satisfaction a person gets from using goods or services. Two significant types of utility used in economic studies are Cardinal Utility and Ordinal Utility. These two helps explain how people decide what to buy or use. Cardinal utility gives a number to the satisfaction level, while ordinal utility only tells the order of preferences. Together, they form the base for understanding consumer behaviour and market patterns. This forms the basis of cardinal and ordinal utility analysis.
What is Cardinal Utility?
Cardinal utility measures how much happiness or satisfaction a person gets from consuming a product. It assigns an actual number to the satisfaction level, known as “utils”. This helps us understand not only which product is preferred but also by how much more. This explanation helps clarify cardinal and ordinal utility from an economic viewpoint.
Features of Cardinal Utility
Cardinal utility is based on these key ideas:
- Quantitative Measurement: It uses numbers to express satisfaction. For example, a person may get 10 utils from eating an apple.
- Marginal Utility: It measures the extra satisfaction from using one more product unit.
- Utility Function: It can be written as U(X), where X is the number of goods consumed. This function helps analyse satisfaction changes.
Example of Cardinal Utility
If a person gets 10 utils from eating one apple and 15 utils from two apples, then the marginal utility from the second apple is 5. This measurable difference is the basis of the cardinal utility concept and helps clarify the difference between cardinal and ordinal utility.
| Product | Total Utility (Utils) | Marginal Utility (Utils) |
| 1 Apple | 10 | – |
| 2 Apples | 15 | 5 |
| 3 Apples | 18 | 3 |
This chart helps us understand how satisfaction changes with each added unit. Such cardinal and ordinal utility examples are commonly used in consumer behaviour studies.
Use in Economic Theory
Cardinal utility supports many theories in microeconomics, as:
- Law of Diminishing Marginal Utility – Additional satisfaction decreases as we consume more units.
- Consumer Equilibrium – A person stops buying more when the utility per unit of money spent is equal across all goods.
What is Ordinal Utility?
Ordinal utility is another way of understanding consumer satisfaction. Unlike cardinal utility, it does not give a number to the satisfaction. Instead, it ranks products in the order a person prefers them. The person knows they like A more than B, but they don’t say how much more. This also helps clarify what cardinal utility and ordinal utility are in contrast.
Key Features of Ordinal Utility
Ordinals can rank their preference among consumption baskets. Still, those preferences are insufficient to measure utility in numbers; instead, they are used to explain choices based on their order.
- Qualitative Analysis: Satisfaction is compared, not measured. There are no utils here.
- Preference Ordering: Consumers show what they like more or less.
- Indifference Curves: These lines show different combinations of goods that provide the same satisfaction.
Example of Ordinal Utility
A person may prefer tea over coffee and coffee over juice. But they do not say how much more they like tea over coffee. They just rank them. This is a classic example in cardinal and ordinal utility analysis.
Application in Economic Theory
Ordinal utility is the base of modern consumer theory. It introduces tools like:
- Budget Line and Indifference Curve analysis
- Consumer Equilibrium without assigning numbers
- Substitution and Income Effects on Preferences
Ordinal utility thus plays a significant role in understanding the difference between cardinal and ordinal utility.
Difference Between Cardinal and Ordinal Utility
Understanding the difference between cardinal and ordinal utility helps explain how economists and theories interpret consumer satisfaction. Both methods help in cardinal and ordinal utility analysis, but work differently.
| Feature | Cardinal Utility | Ordinal Utility |
| Measurement | Quantitative (measurable in utils) | Qualitative (ranked preferences) |
| Approach | Exact numerical value of satisfaction | Relative ranking without numerical value |
| Focus | Marginal Utility and Total Utility | Preference ordering and indifference curves |
| Ease of Comparison | Easy to compare satisfaction levels | Comparison based only on rank |
| Example | 2 apples = 20 utils | Apples are preferred over oranges, no numbers |
While cardinal and ordinal utility differ in approach, both are essential to understanding how consumers choose between different goods.
Similarities Between Cardinal and Ordinal Utility
Even though they differ, cardinal and ordinal utility share many ideas. These similarities are why both are part of economic thinking and models used in studying consumer behaviour.
Commonalities
Businesses and economists can use cardinal and ordinal utility analysis to improve marketing, pricing, and customer satisfaction strategies by analysing these.
- Consumer Satisfaction: Both aim to understand how consumers feel after using goods or services.
- Rational Behaviour: Both assume people act logically to get the most satisfaction.
- Preference Analysis: Preferences help economists predict behaviour.
- Decision-Making: Both models explain how and why people make buying decisions.
Cardinal and Ordinal Utility Examples
The best way to understand cardinal and ordinal utility is through real-life examples showing how people think and behave when making choices.
Cardinal Utility Example
If someone gets 50 utils from eating a pizza and 30 utils from eating a burger, the difference (20 utils) shows how much they enjoy pizza. This is cardinal utility because we can measure the satisfaction difference.
Ordinal Utility Example
A person might say they prefer apples over bananas and bananas over grapes. But they do not say by how much. This is a perfect example of ordinal utility, which ranks preferences without measuring them.
These cardinal and ordinal utility examples are simple but powerful in showing how the two theories work.
Cardinal and Ordinal Utility FAQs
1. What is the key difference between cardinal utility and ordinal utility?
Cardinal utility measures satisfaction with numbers, while ordinal utility only ranks preferences.
2. Why is ordinal utility more common in modern economics?
It’s more straightforward and realistic to rank preferences than assign numbers to feelings of satisfaction.
3. Can both cardinal and ordinal utility be used together?
They can help economists understand behaviour from different angles in cardinal and ordinal utility analysis.
4. Are utils real units in economics?
No, utils are imaginary units used to help explain satisfaction in the cardinal utility theory.
5. What are some real-life cardinal and ordinal utility examples?
Measuring how much more you enjoy one food over another is cardinal. Ranking your favourite snacks without saying how much more you like them is ordinal.
