M01 broo6651 1e sg c01


of cardinal utility is not needed in order to rank consumer choices



Download 0.72 Mb.
View original pdf
Page9/48
Date07.02.2021
Size0.72 Mb.
#55773
1   ...   5   6   7   8   9   10   11   12   ...   48
Ch03
sol 03, sol 03, Ch07
of cardinal utility is not needed in order to rank consumer choices.
Ordinal utility implies an ordering among alternatives without regard for intensity of preference. For example, if the consumer’s first choice is preferred to his second choice, then utility from the first


34
Pindyck/Rubinfeld, Microeconomics, Eighth Edition Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. choice will be higher than utility from the second choice. How much higher is not important. An ordinal utility function generates a ranking of bundles and no meaning is given to the magnitude of the utility number itself. Cardinal utility implies that the intensity of preferences maybe quantified, and that the utility number itself has meaning. An ordinal ranking is all that is needed to rank consumer choices. It is not necessary to know how intensely a consumer prefers basket A over basket B; it is enough to know that A is preferred to B.
9. Upon merging with the West German economy, East German consumers indicated a preference
for Mercedes-Benz automobiles over Volkswagens. However, when they converted their savings
into deutsche marks, they flocked to Volkswagen dealerships. How can you explain this

Download 0.72 Mb.

Share with your friends:
1   ...   5   6   7   8   9   10   11   12   ...   48




The database is protected by copyright ©ininet.org 2024
send message

    Main page