Measuring Marginal Rate of Substitution (MRS)
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Marginal Rate of Substitution provides or quantifies the quantity of one good that a consumer will forgo to obtain one more unit of another good and keep him/her at the same level of utility.
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Marginal Rate of Substitution provides or quantifies the quantity of one good that a consumer will forgo to obtain one more unit of another good and keep him/her at the same level of utility.
#enotesworld #learnecowithus
Meaning and Features of Ordinal Utility Analysis
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The Ordinal Utility approach is based on the fact that the utility that an individual can obtain from a commodity cannot be measured in absolute quantity, but however, it will be possible for him/her to tell subjectively whether the commodity derives more or less or equal satisfaction when compared to another.
Modern economists have discarded the concept of cardinal utility and instead applied the ordinal utility approach to study the behavior of the consumers. While the neo-classical economists believed that the utility can be measured and expressed in cardinal numbers, but modern economists maintain that the utility is a psychological phenomenon that cannot be measured theoretically, quantitatively, and even cardinally.
The modern economist, Hicks, in particular, has applied the ordinal utility concept to study consumer behavior. He introduced a tool of analysis called “Indifference Curve” to analyze consumer behavior. An indifference curve refers to the locus of points each showing different combinations of two substitutes that yield the same level of satisfaction and utility to the consumer.
Here are the photos...
#enotesworld #learecowithus
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The Ordinal Utility approach is based on the fact that the utility that an individual can obtain from a commodity cannot be measured in absolute quantity, but however, it will be possible for him/her to tell subjectively whether the commodity derives more or less or equal satisfaction when compared to another.
Modern economists have discarded the concept of cardinal utility and instead applied the ordinal utility approach to study the behavior of the consumers. While the neo-classical economists believed that the utility can be measured and expressed in cardinal numbers, but modern economists maintain that the utility is a psychological phenomenon that cannot be measured theoretically, quantitatively, and even cardinally.
The modern economist, Hicks, in particular, has applied the ordinal utility concept to study consumer behavior. He introduced a tool of analysis called “Indifference Curve” to analyze consumer behavior. An indifference curve refers to the locus of points each showing different combinations of two substitutes that yield the same level of satisfaction and utility to the consumer.
Here are the photos...
#enotesworld #learecowithus