Cardinal and ordinal utility analysis assume that all the variables, such as prices and income, are known with certainty. However, this is not the case in reality. Consumers have to…
The price effect is the combination of both the income and substitution effects. The substitution effect is always positive, however, the income effect can be positive or negative. Therefore, the…
The ordinal utility analysis involves indifference curves and budget lines to determine consumer choice. A consumer will choose the quantity of a commodity that maximizes utility, given the budget constraint.…
Revealed preference provides an alternative viewpoint to consumer preferences as compared to cardinal or ordinal utility analysis. Ordinal utility analysis vs Revealed Preference The ordinal utility analysis explains consumer choice…
Ordinal utility analysis and indifference curves were developed to overcome the shortcomings of the cardinal utility analysis, which is based on the unrealistic assumption that utility can be accurately measured…
Cardinal utility analysis attempts to explain the logic behind consumer behaviour by attaching value to the utility derived from the consumption of a commodity. By consuming a commodity that individuals…
