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Cardinal Utility

Definition: The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.

The neo-classical economist developed the theory of consumption based on the assumption that utility is measurable and can be expressed cardinally. And to do so, they have introduced a hypothetical unit called as “Utils” meaning the units of utility. Here, one Util is equivalent to one rupee and the utility of money remains constant.

Over the passage of time, it was realized that the absolute measure of utility is not possible, i.e. it was difficult to measure the feeling of satisfaction cardinally (in numbers). Also, it was difficult to quantify the factors that cause a change in the moods of the consumer, their tastes and preferences and their likes and dislikes. Therefore, the utility is not measurable in quantitative terms. But however, it is being used as the starting point in the consumer behavior analysis.

The consumption theory is based on the notion that consumer aims at maximizing his utility, and thus, all his actions and doings are directed towards the utility maximization. The consumption theory seeks to find out the answers to the following questions:

  • How does a consumer decide on the optimum quantity of a commodity that he/she wishes to consume?
  • How consumers allocate their disposable incomes between several commodities of consumption, such that utility is maximized?

The cardinal utility approach used in analyzing the consumer behavior depends on the following assumptions to find answers to the above-stated questions:

  1. Rationality: It is assumed that the consumers are rational, and they satisfy their wants in the order of their preference. This means they will purchase those commodities first which yields the highest utility and then the second highest and so on.
  2. Limited Resources (Money): The consumer has limited money to spend on the purchase of goods and services and thus this makes the consumer buy those commodities first which is a necessity.
  3. Maximize Satisfaction: Every consumer aims at maximizing his/her satisfaction for the amount of money he/she spends on the goods and services.
  4. Utility is cardinally Measurable: It is assumed that the utility is measurable, and the utility derived from one unit of the commodity is equal to the amount of money, which a consumer is ready to pay for it, i.e. 1 Util = 1 unit of money.
  5. Diminishing Marginal Utility: This means, with the increased consumption of a commodity, the utility derived from each successive unit goes on diminishing. This law holds true for the theory of consumer behavior.
  6. Marginal Utility of Money is Constant: It is assumed that the marginal utility of money remains constant irrespective of the level of a consumer’s income.
  7. Utility is Additive: The cardinalists believe that not only the utility is measurable but also the utility derived from the consumption of different commodities are added up to realize the total utility.

Thus, the cardinal utility approach is used as a basis for explaining the consumer behavior where every individual aims at maximizing his/her utility or satisfaction for the amount of money he spends on the consumption of goods and services.

Related terms:

  1. Total Utility
  2. Assumptions of Law of Diminishing Marginal Utility
  3. Cardinal Approach to Consumer Equilibrium
  4. Marginal Utility
  5. Law of Diminishing Marginal Utility

Reader Interactions

Comments

  1. Riya sharma says

    January 25, 2018 at 4:59 pm

    Very good Information about Cardinal Utility.

    Reply
  2. Eliuzima Kimaro says

    January 29, 2018 at 6:56 pm

    Mmh. Utility cannot be measureble in numbers, coz satsfaction is based on preference and tests and this vary from one to another consumer. The preference of A rarely can be the same to B.

    Reply
  3. Isaac says

    April 11, 2018 at 8:17 pm

    Thanks for information .. It is very good has helped me in studying. I appreciate

    Reply
  4. Bernard Jaoko says

    August 10, 2018 at 8:10 pm

    Very informative. It has helped me in studying

    Reply
  5. Supriya pal says

    August 18, 2018 at 12:44 am

    It has cleared my concept about cardinal theory…it satisfied me

    Reply
  6. Pakhi roy says

    November 1, 2018 at 7:11 am

    It is very nicely given , my confusion on Cardinal utility is cleared . Thanks for this 👍

    Reply
  7. MOHAMED SWABIR MOHAMED says

    November 14, 2018 at 4:52 pm

    IT IS VERY AWESOME AM SATISFIED.THANK YOU SO MUCH

    Reply
  8. Akshay Sharma says

    November 27, 2018 at 7:05 am

    Useful information about Cardinal utility

    Reply
  9. Jeofrey mramba says

    January 8, 2019 at 11:34 pm

    It is very useful thanks

    Reply
  10. semir Endris says

    February 25, 2019 at 5:37 pm

    thanks for the Informaton,, deeply brief

    Reply
  11. Meeta Prasad says

    June 27, 2019 at 9:55 pm

    was able to grasp the concept of cardinal utility

    Reply
  12. Gautam Gulati says

    August 17, 2019 at 10:31 am

    Very informative article. Thanks for the information

    Reply
  13. Busulwa Fahima says

    November 2, 2019 at 4:05 pm

    It’s well detailed. Thanks

    Reply
  14. Esther Grace says

    December 13, 2020 at 2:28 pm

    Clear information

    Reply
  15. Runubala Sahoo says

    January 11, 2021 at 10:36 am

    Good explanation

    Reply
  16. Sunday says

    July 11, 2021 at 1:43 pm

    Very informative and I appreciate it.

    Reply
  17. Kallu says

    July 23, 2021 at 12:11 pm

    Very information and maat

    Reply
  18. Ada says

    January 21, 2022 at 10:38 am

    This was helpful

    Reply
  19. Olais says

    June 17, 2022 at 9:35 pm

    It’s is very informative as far as utluty is concerned

    Reply

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