Distinguish between “cardinal” and “ordinal” measurement of utility as used in consumer theory. (2 Marks) (b)....

Distinguish between “cardinal” and “ordinal” measurement of utility as used in
consumer theory.
(b). Assume a consumer spends all her income in the purchase of two goods – Good X and
Good Y whose prices are Ksh. 30 and Ksh. 20 per unit respectively. The consumer's
monthly income is Ksh 3,000. She is satisfied with various combinations of X and Y but
prefers to spend her income not in equal proportions – that is in a ratio of 1:1 respectively
to maintain the level of her satisfaction.
Required:
Using a clearly labeled diagram, show the relevant budget line and indifference curve
indicating the equilibrium position of the consumer.

Expert Solution

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Rahul Sunny answered 2 years ago

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