Describe the two measurement method of utility

There are two measurement method of utility:

(i) Cardinal measurement

(ii) Ordinal measurement

(i) Cardinal measurement: The basic concept in cardinal measurement approach is that the utility of a good can be measure in that the utility of a good can be measure in monetary units by the amount of money offered for a commodity.

For example, utility derived from the consumption of a glass of milk 3 units. Under cardinal utility measurement the consumption of goods and services providing higher satisfaction are accorded higher units.

Table-1:

From the table and the graph we see that the consumer consume 1^st, 2^nd, 3^rd units of a good he gets the utility about 10tk, 8tk, 6tk which is measured by cardinally.

(ii) Ordinal measurement: The basic concept of ordinal measurement approach is that the utility cannot be measured by numerically instead a consumer can ranked different baskets or bundle so as to choose the best basket.

For example: A glass of milk is ranked first while a glass of soda is ranked 2^nd. Under ordinal utility the consumption of goods and services providing higher satisfaction are accorded higher ranks. By indifferences curve ordinal measurement can be showed by graph.

Graphically:

From the graph we see that the higher indifference curve IC3 denotes the higher satisfaction. So we can say that ordinals IC3 > IC2 > IC1 denotes the level of satisfaction of a consumer by ordinal.