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Unit 6: Consumer Behaviour: Ordinal Approach
Tanima Dutta, Lovely Professional University

Unit 6: Consumer Behaviour: Ordinal Approach Notes

CONTENTS

Objectives
Introduction
6.1 Indifference Curve Analysis
6.1.1 Assumptions
6.1.2 Properties of Indifference Curve

6.1.3 Budget Line
6.2 Marginal Rate of Substitution
6.3 Consumer Equilibrium using Ordinal Approach
6.4 Consumer Surplus

6.5 Summary
6.6 Keywords
6.7 Self Assessment
6.8 Review Questions
6.9 Further Readings

Objectives

After studying this unit, you will be able to:
Describe the concept of indifference curve
Realise the concept of marginal rate of substitution

Discuss the concept of consumer’s equilibrium
Explain the concept of consumer’s surplus
Introduction

The modern economists have discarded the concept of cardinal utility and have instead employed
the concept of ordinal utility for analysing consumer behaviour. The concept of ordinal utility is
based on the fact that it may not be possible for consumers to express the utility of a commodity
in absolute terms but it is always possible for a consumer to tell introspectively whether a
commodity is more or less or equally useful as compared to another. For instance, a consumer
may not be able to tell that an ice cream gives 5 utils and a chocolate gives 2 utils. But he or she can
always tell whether chocolate gives more or less utility than ice cream. This assumption forms the
basis of the ordinal theory of consumer behaviour. The consumer behaviour, in economics, can
be studied with the help of indifference curves.
6.1 Indifference Curve Analysis

An indifference curve may be defined as the locus of points. Each point represents a different
combination of two substitute goods, which yields the same utility or level of satisfaction to
the consumer. Therefore, he/she is indifferent between any two combinations of goods when it

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