Question

1.Briefly distinguish between the cardinal utility approach and ordinal utility approach to consumer behavior. Explain with illustration the law of eventual diminishing marginal utility?

Answer 1

Difference in cardinal utility approach and ordinal utility approach to consumer behaviour :-
Basis of of difference
(1) Valuation of satisfaction :- According to the cardinal utility approach, the satisfaction derived from the consumption of a particular good or service can be measured in absolute numbers while according to the ordinal utility approach, the satisfaction derived from the consumption of a particular good or service cannot be measured in absolute numbers.
(2) measurement of satisfaction :- Cardinal utility measures satisfaction in units where as ordinal utility measures satisfaction in terms of ranks.
(3) Measuring order :- Under cardinal utility approach, the consumption of goods and services providing higher satisfaction are accorded higher units where as under ordinal utility approach, the consumption of goods and services providing higher satisfaction are accorded higher ranks i.e. consumption which provides higher satisfaction is given first rank.
(4) Realistic :- Cardinal utility approach is less realistic where as ordinal utility approach is more realistic.
(5) Promoted by :- Cardinal utility approach is promoted by Classical and Neo-Classical Economists where as ordinal utility approach is promoted by Modern Economists.
The law of diminishing marginal utility :- 
The law of diminishing marginal utility states that the marginal utility of a good or service declines as its available supply increases or in simple words we can say that marginal utility of a good or service diminishes as an individual consumes more unit of a good or service. 
Illustration :-
Cups of tea                             Total                                 Marginal
consumed per day (Q)            Utility (Units)                     Utility (Units)
   1                                             12                                      12
   2                                             22                                      10
   3                                             30                                        8
   4                                             36                                        6
   5                                             40                                        4
   6                                             41                                        1
   7                                             39                                       -2
   8                                             34                                       -5
The above table shows the total and the marginal utilities derived by a person by consuming cups of tea per day. When one cup of tea is taken per day the total utility derived by a person is 12 units. And because this is the first cup of the day, its marginal utility is also 12 units. With the consumption of 2 cups per day, the total utility rises to 22 units but the marginal utility falls to 10. It is clear from the table that as the consumption of cups of tea increases, the marginal utility is decreased substantially and as the person consumes 7th cup of tea the total utility also start decreasing and hence the marginal utility became negative. This is because too many cups of tea consumed per day may cause acidity or gas trouble.
The law of diminishing marginal utility describes a familiar and fundamental tendency of human nature.

Answer 2

• Cardinal utility refers to the satisfaction that can be measured number whereas ordinary utility refers to the satisfaction that cannot measure by number.
• Cardinal utility is less realistic whereas ordinary utility is more realistic.
• Cardinal utility is quantitative measure whereas ordinary utility is qualitative measure.
• Cardinal utility follows the marginal utility analysis whereas ordinary utility follows indifference curve analysis.

The law of diminishing marginal utility states that the marginal utility of a good or service declines as its available supply increases. Economic actors devote each successive unit of the good or service towards less and less value ends. The law of diminishing marginal utility is used to explain other economic phenomena, such as time preference.