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Consumer Equilibrium Conditions in the Cardinal Versus Ordinal Approaches: Any Difference?

In: Consequences of Social Transformation for Economic Theory

Author

Listed:
  • Khandakar Elahi

    (Bangladesh Agricultural University)

  • Jack Reardon

    (University of Wisconsin-Eau Claire)

Abstract

‘Utility’ is the foundational concept in modern consumer theory. Currently, two consumer theories have entered into textbooks—cardinal and ordinal approaches—which describe the derivation of the law of market demand. The cardinal approach assumes that consumers can measure utility quantitatively in the theoretical sense. This assumption is conceptually incorrect because ‘utility’ is a psychological phenomenon. To rectify this theoretical weakness, Hicks developed the ordinal utility approach, which he claims does not require quantifying utility. This paper disputes Hicks’ claim. The cardinal approach indicates consumer equilibrium by the equality among all marginal utilities to price ratios, while the same condition is suggested by the tangency between the budget line and the indifference curve in the ordinal approach. These two conditions are not, and cannot be, different because the slope of the indifference curve is the ratio of two marginal utilities, which are cardinal concepts.

Suggested Citation

  • Khandakar Elahi & Jack Reardon, 2023. "Consumer Equilibrium Conditions in the Cardinal Versus Ordinal Approaches: Any Difference?," Springer Proceedings in Business and Economics, in: Vikas Kumar & Evgeny Kuzmin & Wei-Bin Zhang & Yuliya Lavrikova (ed.), Consequences of Social Transformation for Economic Theory, pages 185-198, Springer.
    • Handle: RePEc:spr:prbchp:978-3-031-27785-6_13
    DOI: 10.1007/978-3-031-27785-6_13
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    More about this item

    Keywords

    Microeconomics; Consumer equilibrium; Cardinal approach; Ordinal approach;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • D1 - Microeconomics - - Household Behavior

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