1. a. Cardinal utility: A measure of utility, or satisfaction derived from the
consumption of
goods and services that can be measured using an absolute scale. Cardinal utility
exists if the utility derived from consumption is measurable in the same way that
other physical characteristics--height and weight--are measured using a scale
that is
comparable between people. There is little or no evidence to suggest that such
measurement is possible and is not even needed for modern consumer demand
theory and indifference curve analysis. Cardinal utility, however, is often
employed
as a convenient teaching device for discussing such concepts as marginal utility
and
utility maximisation.
b. Ordinal utility: A method of analysing utility, or satisfaction derived from the
consumption of goods and services, based on a relative ranking of the goods and
services consumed. With ordinal utility, goods are only ranked only in terms of
more
or less preferred, there is no attempt to determine how much more one good is
preferred to another. Ordinal utility is the underlying assumption used in the
analysis
of indifference curves and should be compared with cardinal utility, which
(hypothetically) measures utility using a quantitative scale.