Ordinalist and cardinalist approach

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Ordinalist and cardinalist approach

Significance of Demand Analysis Demand is one of the crucial requirements for the functioning of any business enterprise, its survival and growth.

Information Ordinalist and cardinalist approach the size and type of demand helps the management in planning its requirements of men, materials, machines and money. For example, if the demand for a product is subject to temporary business recession, the firm may plan to pile up the stock of unsold products.

If the demand for a product shows a trend towards a substantial and sustained increase in the long run, the firm may plan to install additional plant and equipment to meet the demand on a permanent basis.

The common theme underlying these examples is that the whole range of planning, cost budgeting, purchase plan, market research, pricing decision, advertisement budget, profit planning etc. In fact, demand analysis is one area of economics that has been used most extensively by business.

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The decision which management makes with respect to any functional area, always hinges on an analysis of demand. Provided we are all rational beings, it can be said that, behind all activities, our basic motive is to maximize the total level of satisfaction.

Whatever we choose in our daily life depends on the way we value it.

Ordinalist and cardinalist approach

For example, if you are given with alternatives, either to study Economics or to practice Mathematics, you will choose the alternative that gives you more satisfaction.

Again, when the number of available alternatives is more than two we may choose a combination. Here we have to understand the difference between preferences and choices.

From a bunch of goods available to the consumer, there may exist a difference in his preference and choice. This is because; while we make preferences we only express our likes and dislikes.

On the contrary, we choose something from the preferred alternatives that suits our budget best. The concept of utility has been developed by economists to explain the basic principles of consumer choice and behavior. By utility we mean the extent of satisfaction obtained from the consumption of goods and services preferred by consumers.

Given the available resources, the level of income, and market prices of various goods, the rational consumer allocates his spending in such a way that the preferred combination gives him the highest utility.

According to the cardinalist approach, utility can be measured in subjective units. Whereas, the ordinalists opine that utility cannot be measured, but can only be ranked in order of preference.

For example, let us consider that there are five goods, X1, X2, X3, X4 and X5, from which the consumer has to choose only one. Following the cardinalist approach, let us assume that the amounts of utilities obtained from the various goods are:approaches to the of consumer behavior of demand the first approach is the marginal utility or cardinalist approachthe second is the ordinalist approachwe discuss these two approaches separately.

c) Explain the shape and relationship between Average Cost and Marginal cost curves using a diagram. MBA Page 3 of4 (5 marks) Where C = Cost measured in shillings, while Q = .

The demand curve demonstrates how much of a good people are willing to buy at different prices. In this video, we shed light on why people go crazy for sales on Black Friday and, using the demand curve for oil, show how people respond to changes in price.

1. ECN ECN Principles of Economics I (Micro) (2 Units) The course deals with a more in-depth treatment of ECO It also introduces the use of. The cardinalist approach to welfare economics was first developed by Pigou () as a way to overcome the limitations of the Pareto ordinalist approach, since the latter allows only incomplete rankings of social choices that significantly restrict the scope of analysis, unless, as demonstrated by Arrow's () impossibility theorem.

Jun 19,  · To compare the various goods available to the consumer, two basic approaches are followed; ‘the cardinalist approach’ and ‘the ordinalist approach’. According to the cardinalist approach, utility can be measured in subjective units.

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