Differentiation in between equilibrium position of ordinal and cardinal approaches

ECONOMICS

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
1. a) Differentiation in between equilibrium position of ordinal and cardinal approaches.........3
1.b) Usefulness of concept of elasticities....................................................................................4
Question 2........................................................................................................................................5
2. a) Relationship between short run cost...................................................................................5
2. b) Difference between perfectly competitive firm and monopolist firm in respect to short
run equilibrium............................................................................................................................6
Question 3........................................................................................................................................7
3. a) Inflation...............................................................................................................................7
b)Costs of Inflation.....................................................................................................................8
Q4.....................................................................................................................................................8
a)Components of aggregate demand...........................................................................................8
b)Valuation of effectiveness of GDP.........................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Economics is defined as the concept study how people interact and behave with values. This
whole concept is about to understand how economic factors affect the people ion society. This
report will emphasis over certain principles and concepts related to economics. Henceforth,
report will focus over different theories related to consumer behaviour. Usefulness of the concept
of elasticities will also elaborate in this project. Relationship between different short run cost will
also analyse in this project. In context to the perfectly competitive firm and a monopolist firm
short run equilibrium situation will analyse in this project. Furthermore, this study will research
about inflation and the cost of inflation. Different elements associated with the GDP will also
analyse in this task.
Question 1
1. a) Differentiation in between equilibrium position of ordinal and cardinal approaches
Equilibrium point is the situation arises in market where both demand and supply contain
equal position. This is the point in economy where supply of products is equal to the overall
demand available in the market related to certain products. This point is crucial as in order to
control inflation equilibrium point is the biggest weapon which economy can use. TH basic
concept of equilibrium position in market is the same but it can be analysed with the support of
different approaches like ordinal and cardinal approaches.
Cardinal utility is the satisfaction that can only be measured in numbers whereas ordinal
utility denote the satisfaction level which can never be measured in numbers. The concept of
cardinal utility was first used by Marshal on the other side ordinal utility was initially used by JR
Hicks. In term of realistic cardinal utility can state as less realistic as compare to ordinal utility.
In term of qualitative and quantitative measures' cardinal is quantitative in nature whereas,
ordinal is qualitative in nature (Schroenn Goebel, 2017). The approach of cardinal also involve
marginal points and the ordinal is more based on indifference position of the products. The key

different between the equilibrium positions in both the utilities is that cardinal is measured in
units and the other one is identified in term of ranking. Consumer behaviour is very volatile in
nature as it keep on changing. It becomes very difficult to monitor point of equilibrium in respect
to consumer behaviour. Changing nature of both these concepts cater more challenges
monitoring and measure equilibrium points. The measurement units for both this position are
also different in nature.
1.b) Usefulness of concept of elasticities
Elasticity concept is all about measuring the possible level of changes in one factor due to
changes in other associated element. Organisation and business entities take all important
decision related to business such as pricing decision, product supply decision, production related
decision-making and all other decisions based on the overview related to elasticity concept.
Every company while taking the pricing related decisions and in the process of setting up prices
of different products use this concept of elasticity so that company or business entity can achieve
the best level of growth opportunities and potential in respective target market. The entire
concept of elasticity play significant role in conducting market study. Sustainability and growth
in business is always influenced with decision-making of management (Hu, 2017). The entire
concept allow management in every organisation to take the best level of decision related to
product supply, manufacture and develop.
This concept is equally useful in context to trade at international level. Not only at the
domestic level but also at an international level elasticity concept play huge role and support the
management to take the best level of decision. The use of elasticity concept also for the
government and institutions to frame fiscal policy. Product development activity is among the
major practices used by the business entity. ON the basis of the concept under this segment
companies get to launch nee products and development strategies for all the future developments
that can benefit to business entity (Alshiybani, 2019). This concept also support in controlling
inflation. In process to sustain the economic flow and healthy balance in market this concept play
huge role. The entire concept of elasticity is well diversified as it allows the business to keep
balance in demand, supply, prices and all other elements which support in achieving effective
flow of business in respective market.