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Approaches to utility analysis

Every Consumer is a rational consumer i.e., he always tries to get the maximum satisfaction with the limited income he has. The point, where consumer derives maximum satisfaction is known as ‘Equilibrium’. This equilibrium concept could be explained in two different ways. They are:
  • Cardinal analysis
  • Ordinal analysis

Cardinal Analysis

Ordinal Analysis

This approach was developed by Alfred Marshall

This approach was developed by J. R. Hicks and R. J. D. Allen

This analysis assumes that satisfaction that a consumer derives from various goods and services could be expressed in terms of cardinal numbers. Like 1,2,3,4,5 …………..

This analysis condemns cardinal measurability of utility and argues that satisfaction can’t be measured in terms of numbers but only could be arranged/ranked in the order of preference

We study four basic concepts under this. They are:

  • Law of Diminishing Marginal Utility
  • Consumer’s Equilibrium with Single Commodity
  • Law of Equi-Marginal Utility.
  • Consumer Surplus

We study Indifference Curve Analysis

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