Concept Of Cardinal Utility Analysis
Cardinal utility analysis is based on the cardinal measurement of utility which assumes that utility is measurable and additive. This theory was developed by neo-classical economists like Marshall, Pigou, Robertson etc. It is expressed as a quantity measured in hypothetical units which called utils. If a consumer imagines that one mango has 8 utils and an apple 4 utils, it implies that the utility of mango is twice than of an apple.
Assumptions Of Cardinal Utility Analysis
1. Rationality
The consumer is assumed to the rational. He tries to maximize his total utility under the income constraint.
2. Cardinal Utility
The utility of each commodity is measurable. Utility is cardinal concept. The most convenient measure is money. Thus utility can be measured quantitatively in monetary units or cardinal units.
3. Constant Marginal Utility Of Money
The utility derived from commodities are measured in terms of money. So, money is a unit of measurement in cardinal approach. Hence, marginal utility of money should be constant.
4. Diminishing Marginal Utility
If the stock of commodities increases with the consumer, each additional stock or unit of the commodity gives him less and less satisfaction. It means utility increases at a decreasing rate.
5. Independent Utilities
It means utility obtained from commodity X is not dependent on utility obtained from commodity Y. It does not affected by the consumption of other commodities.
