Difference Between Cardinal Utility and Ordinal Utility

The main difference between Cardinal Utility and Ordinal Utility is that Cardinal Utility gives a utility value to different options and Ordinal Utility is ranked in terms of preference.

Cardinal Utility vs. Ordinal Utility

Cardinal utility states that the satisfaction a consumer gets from consuming goods and services can be measured in numbers, while ordinal utility states that the satisfaction a consumer gets from consuming goods and services cannot be measured in numbers. Rather, ordinal utility uses a ranking system in which a ranking is given to the satisfaction derived from consumption. According to the cardinal analysis, utility can be measured quantitatively so that a consumer can express his preference. Not only can he say that commodity X prefers commodity Y, but he can also say how much commodity X likes commodity Y. But in ordinal utility, the consumer does not indicate the amount, rather, he can say that satisfaction derives from one combination of goods higher or lower than from other combinations. In cardinal utility, he assumed that consumers obtain satisfaction through the consumption of one good at a time. However, in ordinal utility, it is assumed that a consumer can derive satisfaction from consuming a combination of goods and services, which will then be ranked according to their preferences. Cardinal utility can be measured, and at the same time preference can be observed. For consumers, on the other hand, ordinal utility cannot be measured, but consumer preference can be observed.

What is CardinalUtility?

The cardinal utility expresses the satisfaction that the consumer obtains when consuming goods and services measured with numbers. Cardinal utility measured in terms of utilities (units on a utility or satisfaction scale). As indicated by cardinal utility, goods and services that can lead to a higher level of customer satisfaction will allocate higher utility, and goods that result in a lower level of satisfaction will allocate lower utility. Cardinal utility is a quantitative procedure used to measure consumer satisfaction. Furthermore, he realized over time that the cardinal measure of utility is not possible and therefore less realistic. There are many problems with measuring utility numerically,

What is ordinal utility?

Ordinal utility expresses the satisfaction that the consumer obtains from the consumption of goods and services not measured in numbers. Modern economists hold that utility, being a psychological phenomenon, cannot be calculated quantitatively, theoretically, and conceptually. Despite this, a person can introspectively express whether a good or service provides more, less or the same satisfaction compared to others. Rather, ordinal utility uses a ranking system in which a ranking is given to the satisfaction derived from consumption. For example: Suppose a person likes tea with coffee and coffee with milk. Thus, he or she can subjectively tell her preferences, ie, tea > coffee > milk. As indicated in ordinal utility, goods, and the services that provide the customer with a higher level of satisfaction will be named higher ranges and the opposite for goods and services that present a lower level of satisfaction. The goods that provide the highest level of consumption satisfaction will offer the highest rank. Ordinal utility is a qualitative method used to measure consumer satisfaction.

Key differences

1. The cardinal utility is the service or benefits where the satisfaction or comfort that consumers obtain from the consumption of a good or service measured numerically is obtained. Ordinal utility states that the satisfaction a consumer gets from consuming a product or service cannot be measured numerically.
2. Cardinal utility is less practical, since quantitative measurement of utility is not possible. On the other hand, ordinal utility is more practical since it is based on qualitative measurement.
3. Cardinal utility measured with respect to utilities, that is, units of utility. In contrast, ordinal utility is measured with respect to a product’s preference ranking when compared to each other.
4. Cardinal utility measures utility objectively, while there is a subjective measure of ordinal utility.
5. Cardinal utility refers to marginal utility analysis. In contrast to this, the concept of ordinal utility refers to the analysis of indifference curves.

Throughout the analysis of consumer behavior, they describe two levels of sophistication. Both cardinal and ordinal utility are essential in assessing and examining consumer demand for a good or service, regardless of purpose.