It is argued this is more relevant in the real world. In ordinal utility, the consumer only ranks choices in terms of preference but we do not give exact numerical figures for utility.įor example, we prefer a BMW car to a Nissan car, but we don’t say by how much. However, proving exact measurement of utility proved elusive. William Stanley Jevons, Léon Walras, and Alfred Marshall all developed concepts of utility, usually linked to market prices. Jeremy Bentham talked about utility as maximising pleasure and minimising pain. Demand curve showing cardinal utilityĬardinal utility is an important concept in utilitarianism and neo-classical economics. The idea consumers make optimal choices to maximise their utility. The idea of cardinal utility is important to rational choice theory. In other words, the value of cardinal utility is related to the price we are willing to pay. If we are willing to pay £5,000 for a second-hand Nissan Car, we can infer we must get 5,000 utils. One way to try and put values on goods utility is to see what price they are willing to pay for a good.
For example, allocative efficiency is said to occur when Marginal cost = Marginal Utility. This is important for welfare economics which tries to put values on consumption. For example, if a Nissan car gives 5,000 units of utility, a BMW car would give 8,000 units. Ordinal utility just ranks in terms of preference.Ĭardinal Utility is the idea that economic welfare can be directly observable and be given a value.įor example, people may be able to express the utility that consumption gives for certain goods. Summary: Cardinal utility gives a value of utility to different options.
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