Shan Li's writing assignment-week 1

Generally, consumers prefer one good to another, and prefer more of any good to less. Given preference and limited incomes, consumers can choose between market baskets containing different amount and types of goods, which will affect their satisfaction.  In economics, utility is a measure of such satisfaction, affected by consumption of various goods and services, explaining economic behavior in terms of attempts to maximize one’s satisfaction. There are two kinds of utility, cardinal and ordinal utility. Cardinal utility describes the extent to which one market basket is preferred to another, however ordinal utility places market baskets in the order of most preferred to least preferred, but it does not indicate how much one market basket is preferred to another. Although many economists think that cardinal utility can easily be calculated and understood, other economists prefer to use ordinal utility and argue that calculation of utility is meaningless, because it is difficult to translate people’s desire or satisfaction into cardinal numbers. For example, suppose an apple has a utility of 20 units, a peach has a utility of 40 units, and a pear has a utility of 60 units to a typical consumer, when speaking of cardinal utility, it could be concluded that the pear is better than the peach by exactly the same amount by which the peach is better than the apple. If we use ordinal utility, it would only be possible to say that the pear is preferred to the peach to the apple, but no more. However, in real life, it is hard for us to make sure that the quantitative relations when we using cardinal utility are exist or exact. So using ordinal utility to rank market baskets is enough. As for the tending to aggregate utilities across persons by dealing with cardinal utilities, the argument against this is that interpersonal comparisons of utility are improper because there is no good way to interpret how different consumers value market baskets.