Q. 10 A5.0( 1 Vote )

Explain with the

Answer :

The ordinal approach is also known as Indifference curve approach. In the ordinal approach, the consumer preferences are being ranked based on the basis of the satisfaction level. The ordinal approach is has rejected the cardinal utility approach in which the utility is being measured in a numerical value known as ‘util’. Ordinal utility means that the consumer is ranking or ordering the subjective utilities of good.


Diminishing Marginal Rate of Substitution is one of the assumptions for the ordinal approach of the theory of consumer's behaviour.


The marginal rate of substitution is the rate at which the one good is substituted for consuming more of another good and to be in the same level of satisfaction is known as Marginal rate of Substitution. In an ordinal approach the consumer preference is ranked in terms of the indifference curve. Indifference curves are convex to the origin. The convexity of the indifference curve implies the diminishing marginal rate of substitution. Diminishing Marginal Rate of Substitution means the quantity of one good the consumer willing to sacrifice for each additional unit of another good goes on diminishes.


If there are two goods namely X and Y. Diminishing Marginal Rate of Substitution that the quantity of Y the consumer is willing to substitute for each additional unit of the X goes on diminishes.


Example



The Marginal rate of substitution from the combination A to E is continuously diminishing because of increase in consumption of Mangoes by sacrificing the Apples. When the consumer is consuming the combination B with 11Apples and 2Mangoes the Marginal rate of substitution is 4. When the combination is C were 3 apples are sacrificed for gaining 1 mango the MRS falls from 4 to 3. This diminishing MRS depicts the slope of the indifference curve.


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