Question

Sequence the following theories/concept earliest to latest: A. Ordinal Utility, B. Cardinal Utility, C. Revealed Preference, D. Slutsky decomposition, E. Modern behavioural economics.

• A. A, B, C, D, E
• B. A, B, D, C, E
• C. A, D, B, C, E
• D. B, A, C, D, E

Hint:

Consumer theory generally moves from cardinal utility to ordinal utility, then to revealed preference and modern behavioural approaches.

Answer 1

The Correct Option is D

Concept: Consumer behaviour theories developed gradually from cardinal measurement of utility to ordinal analysis, revealed preference theory, decomposition analysis, and modern behavioural economics.

Step 1: Start with Cardinal Utility.
Cardinal utility is one of the earliest approaches. It assumes utility can be measured numerically. \[ B = \text{Cardinal Utility} \]

Step 2: Move to Ordinal Utility.
Ordinal utility came later and argued that consumers can rank preferences rather than measure utility numerically. \[ A = \text{Ordinal Utility} \]

Step 3: Then Revealed Preference.
Revealed preference theory studies consumer preference through actual choices. \[ C = \text{Revealed Preference} \]

Step 4: Then Slutsky decomposition.
Slutsky decomposition separates price effect into substitution effect and income effect. \[ D = \text{Slutsky decomposition} \]

Step 5: Finally modern behavioural economics.
Modern behavioural economics includes psychological and behavioural factors in economic decision making. \[ E = \text{Modern behavioural economics} \] Therefore, the correct sequence is: \[ B, A, C, D, E \]