ordinal utility

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ordinal utility

the (subjective) UTILITY or satisfaction that a consumer derives from consuming a product, measured on a relative scale. Ordinal utility measures acknowledge that the exact amount of utility derived from consuming products cannot be measured in discrete units, as implied by CARDINAL UTILITY measures. Ordinal measures instead involve the consumer ordering his or her preference for products, ranking products in terms of which product yields the greatest satisfaction (first choice), which product then yields the next greatest satisfaction (second choice), and the product which then yields the next greatest satisfaction (third choice), and so on. Such ordinal rankings give a clear indication about consumer preferences between products but do not indicate the precise magnitude of satisfaction as between the first and second choices and the second and third choices, etc.

Ordinal utility measures permit consumer preferences between two products to be shown in the form of INDIFFERENCE CURVES which depict various combinations of the two products that yield equal satisfaction to the consumer. Assuming ‘rational’ consumer behaviour (see ECONOMIC MAN), a consumer will always choose to be on the highest possible indifference curve, although the increase in satisfaction to be derived from moving from a lower to a higher indifference curve cannot be exactly determined. Nevertheless, INDIFFERENCE MAPS can be used to construct DEMAND CURVES. See DIMINISHING MARGINAL UTILITY.