List the assumptions of indifference curve approach. Differentiate between ordinal and cardinal utility
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Fundamental Dissimilarities of Cardinal Utility and Ordinal Utility:
Cardinal utility is a function that determines the satisfaction of a commodity used by an individual and can be supported with a numeric value. On the other hand, ordinal utility defines that satisfaction of user goods can be ranked in order of preference but cannot be evaluated numerically.
The measuring term for cardinal and ordinal utility is utils and ranks respectively. Utils is the unit of utility and ranks determines the preference of a product compared to other products in the market.
Ordinal utility measures the utility of goods subjectively, but cardinal utility evaluates objectively.
Cardinal utility is not much realistic as compared to the ordinal one as quantitative evaluation of utility is not practicable. Ordinal utility depends on qualitative measurement, which makes it more realistic.
Another difference between ordinal and cardinal utility is that the former one is based on indifference curve analysis, and the latter is based on marginal utility evaluation.
Alfred Marshall and his admirers presented the cardinal utility approach, and Hicks and Allen pioneered the ordinal utility idea.
Another point that can be considered as a difference between cardinal and ordinal utility is that ordinal evaluation is sure to give outcomes. The ordinal utility is preferred more because it provides more robust results. Conversely, the concept of cardinal utility is obsolete, but still, it is used for contexts like discounted utilities, making settlements under risk and utilitarian welfare calculations.
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