7 B. Ordinal Utility Approach (Hicks and Allen, 1934)

• Meaning: utility cannot be measured, only ranked — the consumer can say "A is preferred to B," not "A gives 10 utils." • Instruments: the indifference curve (all bundles giving equal satisfaction) with its marginal rate of substitution (MRS); the budget line; equilibrium at the tangency of the two. • Assumptions: rationality; ordinal preference-ranking; transitivity (if A > B and B > C, then A > C); non-satiation (more is better); diminishing MRS (the curve is convex — you surrender less and less of Y for each extra X).