What is Ordinal Utility Approach?
This approach states that utility can not be expressed in cardinal numbers like 1,2,3, and 4, rather it can only be ranked as high or low. The concept of cardinal utility was discarded by modern economists. According to them, utility is a psychological experience that cannot be quantified in absolute terms. They believe that consumers can order different combinations of goods and services to their preferences.
For example, if a consumer consumes two goods like Tea and Coffee, then he can say that:
- He prefers tea over coffee;
- He prefers coffee over tea;
- Both are equally preferable and both of them provide the same level of satisfaction. This indicates that he is indifferent between tea and coffee.