Question

What is the difference between ordinal utility and cardinal​ utility?

Ordinal utility refers to

A.satisfaction when consumers are rational

while cardinal utility is satisfaction when consumers are not rational

B.

an interpersonal comparison of​ satisfaction, while cardinal utility is a ranking of market baskets using arbitrary numerical values.

C.

a ranking of market baskets in order of most to least​ preferred, while cardinal utility indicates how much one market basket is preferred to another.

D.a ranking of market baskets based on

consumption while cardinal utility is a ranking of market baskets based on income.

E.

a ranking where the intensity of preferences is​ quantified, while cardinal utility is a number that by itself has no meaning.

Explain why the assumption of cardinal utility is not needed in order to rank consumer choices.

Cardinal utility is not needed in order to rank consumer choices because economists

A.

only need to understand the characteristics of collective market demand.

B.

can instead use ordinal utility to show how consumers rank different baskets.

C.have found that income cannot buy happiness.

D.

do not assume that consumer choices are based on consumer behavior.

E.

do not seek to understand how individual consumer decisions are made.

Answer 1

1. Correct option: (C)

Reason: Ordinal utility ranks preferences using choice and not numbers. Cardinal utility ranks preferences using numbers and helps compare how much one is preferred over another

2. Correct option: (B)

Reason: Ordinal utility is used as a better measure of ranking preferences