Compare and contrast cardinal utility and ordinal utility. Which concept is sufficient for ranking consumers' preferences? Why?
What will be an ideal response?
Both cardinal and ordinal utility are means by which consumer preferences can be ranked. Cardinal utility implies that we can measure the intensity of a consumer's preferences. Ordinal utility implies that we can only rank an alternative as either "better" or "worse" than another alternative. Ordinal utility is sufficient because the theory of the consumer requires only that a consumer can rank all alternative consumption bundles in order of their preferences.
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In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?
A. "The brand I buy is so superior to other available brands that I hardly consider the others." B. "I use so little of that product that when I do buy it, I don't pay much attention to the price." C. "The different brands are almost identical. I always buy the cheapest." D. "I pinch pennies in buying other products, but like most people I feel I owe it to myself to get the best brand of this product."
The techniques of regulation used in the U.S. are
(a) meant to solve basic problems, but they create others. (b) meant to re-enforce the "decisions of the marketplace." (c) meant to manage problems rather than solve them. (d) designed to make the economy more efficient than is possible with only the free market mechanism.
Which of the following statements is not correct?
a. The government may use antitrust laws to prevent a merger if the government believes the merger will reduce competition and increase prices. b. By regulating a natural monopoly where price equals average total cost, the monopoly earns zero profits. c. An advantage of private ownership over public ownership is that private business owners tend to fire inefficient managers. d. The government should always intervene to improve monopoly inefficiency.
Which of the following can reduce the level of long-run economic growth?
A. A decrease in deficit spending by the government. B. An increase in government safety regulations. C. An increase in the savings rate. D. Government enforced property rights.