a. Cardinal Utility and Ordinal utility theory:
Cardinal Utility theory suggests that utility can be measured numerically, meaning that individuals can assign precise values to the amount of satisfaction derived from the consumption of each unit of a particular good or service. On the other hand, Ordinal utility theory asserts that while individuals can rank their preferences for different goods or services, they cannot assign specific numerical values to these preferences. Ordinal utility theory is based on the idea that individuals can only express their preferences in terms of rankings or orderings.
b. Total utility and Marginal Utility:
Total utility refers to the total satisfaction or benefit that an individual receives from consuming a certain quantity of a good or service. It represents the overall level of satisfaction derived from the entire consumption experience. Marginal utility, on the other hand, refers to the additional satisfaction or benefit that an individual gains from consuming one more unit of a good or service. It measures the change in total utility resulting from a change in the quantity consumed.
c. Indifference curve and budget line:
Indifference curve represents a graphical representation of different combinations of two goods that provide an individual with the same level of satisfaction or utility. It shows the various bundles of goods among which an individual is indifferent. The budget line, on the other hand, represents the different combinations of two goods that an individual can afford to consume given his or her budget constraint. It shows the trade-off between two goods based on their prices and the individual's income.
d. Input and output:
Inputs are the resources or factors of production used in the production process. They can be materials, labor, capital, land, and technology, among others. Inputs are transformed into outputs through the production process. Outputs, on the other hand, are the goods or services that are produced as a result of the production process. They represent the final products that are consumed or sold in the market.
e. Fixed input and variable input:
Fixed inputs refer to the resources or factors of production that cannot be easily changed or adjusted in the short run. They can include capital equipment, land, and some labor. These inputs are called fixed because their quantities remain constant regardless of the level of production. Variable inputs, on the other hand, are the resources or factors of production that can be easily adjusted or changed in the short run. They include variable labor, raw materials, and other variable costs that vary with the level of production.
1.Discuss the difference between the following terms
a.Cardinal Utility and Ordinal utility theory
b.Total utility and Marginal Utility
c.Indifference curve and budget line
d.Input and output
e.Fixed input and variable input
1 answer