The main difference between Cardinal Utility and Ordinal Utility is that Cardinal utility gives a value of utility to different options and Ordinal utility ranks in terms of preference.
Cardinal Utility vs. Ordinal Utility
Cardinal utility states that the satisfaction that the consumer derives by consuming goods and services can be measured with numbers whereas ordinal utility states that the satisfaction that the consumer derives from the consumption of goods and services cannot measure in numbers. Rather, the ordinal utility uses a ranking system in which a ranking provided to the satisfaction derived from consumption. According to cardinal analysis, the utility can be measured quantitatively so that a consumer can express his preference. He not just can say that commodity X preferred to Y, but he can also say by how much he likes commodity X to commodity Y. But in ordinal utility, the consumer does not state quantity but can say that the satisfaction derived from a combination of goods in high or low that from other combinations. In cardinal utility, it assumed that consumers derive satisfaction through consumption of one good at a time. However, in the ordinal utility, it is assumed that a consumer may derive satisfaction from the consumption of a combination of goods and services, which will then ranked according to preference. Cardinal utility can be measured, and at the same time the preference of the consumers can be observed, on the other hand, the ordinal utility cannot measure, but it is possible to observe the preference of the consumer.
What is Cardinal Utility?
Cardinal utility expresses that the satisfaction the consumer derives by consuming goods and services measured with numbers. Cardinal utility measured in terms of utils (the units on a scale of utility or satisfaction). As stated in cardinal utility, the goods, and services that can derive a higher level of satisfaction to the customer will assign higher utils and goods that result in a lower level of satisfaction will assign lower utils. Cardinal utility is a quantitative procedure that is used to measure consumer satisfaction. Further, it realized with time that the cardinal measurement of utility is not possible, therefore less realistic. There are many issues in measuring utility numerically, as the utility derived by the consumer from a good or service depends on several factors such as mood, interest, taste, preferences and much more.
What is Ordinal Utility?
Ordinal utility expresses that the satisfaction the consumer derives from the consumption of goods and services not measured in numbers. Modern Economists keep that utility being a psychological phenomenon, cannot be calculated quantitatively, theoretically and conceptually. Despite that, a person can introspectively express whether a good or service provides more, less or equal satisfaction when compared to one another. Rather, the ordinal utility uses a ranking system in which a ranking provided to the satisfaction derived from consumption. For example: Suppose a person likes tea to coffee and coffee to milk. Therefore, he or she can tell subjectively, his/her preferences, i.e., tea > coffee > milk. As stated in ordinal utility, the goods, and services that provide the customer a higher level of satisfaction will be appointed higher ranks and the opposite for goods and services that present a lower level of satisfaction. The goods that provide the highest level of satisfaction in consumption will offer the highest rank. The ordinal utility is a qualitative method that is used to measure consumer satisfaction.
- Cardinal utility is the service or benefits wherein the satisfaction or comforted derived by the consumers from the consumption of good or service measured numerically. The ordinal utility provides that the satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically.
- Cardinal utility is less practical, as quantitative measurement of utility is not possible. On the other side, the ordinal utility is more practical as it relies on qualitative measurement.
- The cardinal utility measured with regards to utils, i.e., units of utility. In contrast, the ordinal utility is measured with regards to the ranking of preferences of a commodity when compared to each other.
- Cardinal utility taking measures the utility objectively, whereas there is a subjective measurement of ordinal utility.
- Cardinal utility, is regard to marginal utility analysis. As against this, the concept of ordinal utility is regarding indifference curve analysis.
Throughout the analysis of consumer behavior, they portray two levels of sophistication. Both cardinal and ordinal utility are essential to assess and examined consumer demand for a good or service, irrespective of the purpose.