In this article we will discuss about the cardinal and ordinal measurability of utility.
Cardinal Measurability of Utility:
Some economists are of the opinion that utility can be measured in cardinal units. For example, Sir Alfred Marshall (1842-1924), the noted neoclassical economist, said that utility can be measured cardinally in terms of money. Money is the measuring rod of utility.
According to Marshall, the amount of money a person is willing to pay for having, rather than for not having the marginal unit of a good, measures the utility derived by the consumer from that unit.
An important characteristic feature of cardinal measurement of utility is that here it may add up the utilities derived from different units of a good, or it may add up the utility derived from one good and that obtained from another good.
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For example, if the consumer gets Rs 10 of utility from the 1st unit of a good and Rs 5 of utility from the 2nd unit of the good, then he gets a total utility of Rs 15 from the two units of the good. Also he can say that the utility derived from the first unit is twice as much as that obtained from the second unit.
Similarly, if the consumer gets Rs 20 from one unit of good X and Rs 10 from one unit of good Y, then the total utility obtained would be Rs 30. Also, the utility derived from one unit of good X may be said to be twice as much as that obtained from one unit of good Y. But the idea of cardinal measurability of utility had been rejected by the later economists mainly on three counts.
First, utility is a subjective and abstract concept, i.e., how much utility one may derive from a unit of a particular good may vary from subject to subject.
Second, although utility is measured in units of money, utility of a unit of money is not constant.
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For a person having more money, the marginal utility of money is smaller than for a person having less money. Third, the hypothesis of ordinal measurability of utility may lead to even an improved version of the theory of consumer behaviour.
Ordinal Measurability of Utility:
Economists like Hicks, Allen, Edgeworth, and Pareto did not like the idea of cardinal measurability of utility for reasons mentioned above. Instead, they gave the idea of ordinal measurability of utility, or the concepts of preference and indifference between different combinations of goods people consume.
According to them, it is rather unrealistic to assume that a consumer would be able to say that he gets a utility of, say, Rs 20—neither Rs 19.50 nor Rs 20.50—from the consumption of a unit of some good, and that he gets, say, Rs 10 of utility from the consumption of one unit of a second good, and so he likes the first good twice as much as the second, or, that he gets a total utility of Rs 30 from one unit each of the two goods.
On the other hand, it may be quite reasonable to assume that he would be able to convey whether he prefers one unit of some good to one unit of some other good, or, if he is indifferent between the two positions. This is the so-called ordinal measurement of utility. In other words, in ordinal measurement, the consumer can compare the utility levels derived from two different consumption situations.