How does marginal utility theory explain the concept of ordinal utility?

Marginal utility theory explains the concept of ordinal utility by focusing on the idea that individuals derive satisfaction or utility from consuming additional units of a good or service. According to this theory, the satisfaction or utility gained from consuming each additional unit of a good or service diminishes as more units are consumed.

Ordinal utility refers to the ranking or ordering of preferences that individuals have for different goods or services. It suggests that individuals can determine their preferences for different goods or services based on the satisfaction or utility they derive from consuming them. However, ordinal utility does not quantify the exact amount of satisfaction or utility gained from consuming each unit of a good or service.

Marginal utility theory explains ordinal utility by stating that individuals make choices based on the relative satisfaction or utility they expect to gain from consuming different goods or services. When individuals make decisions about consuming goods or services, they compare the additional satisfaction or utility they expect to receive from consuming one more unit of a good or service with the additional satisfaction or utility they expect to receive from consuming one more unit of another good or service.

For example, let's consider a person deciding between consuming an additional slice of pizza or an additional scoop of ice cream. The person will compare the additional satisfaction or utility they expect to gain from consuming one more slice of pizza with the additional satisfaction or utility they expect to gain from consuming one more scoop of ice cream. If the person expects to gain more satisfaction or utility from the additional slice of pizza, they will choose to consume it.

In this way, marginal utility theory explains the concept of ordinal utility by emphasizing that individuals make choices based on the relative satisfaction or utility they expect to gain from consuming different goods or services. It recognizes that individuals have preferences and can rank their choices, but it does not assign specific numerical values to the satisfaction or utility gained from consuming each unit of a good or service.