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 Alfred Marshall, A. C Pigou, Robertson, etc. It is expressed as a quantity measured in hypothetical units, which are called ‘utils’. If a consumer imagines that one mango has 8 utils and an apple has 4 utils, it implies that the utility of mango is twice than that of apple
Assumptions of cardinal utility analysis
The consumer is assumed to be rational. He tries to maximize his total utility under the income constraint.
- Cardinal utility
The utility of each commodity is measurable. The most convenient measure is money. The utility can be measured quantitatively in monetary units or cardinal units.
- Constant marginal utility of money
The utility derived from the commodities are measured in terms of money. So, money is the unit of measurement in the cardinal approach. Hence, the marginal utility of money should be constant.
- Diminishing marginal utility
If the stock of commodity increases, with the consumers’ every additional unit of the commodity, it gives him less and less satisfaction. It means utility increases at a decreasing rate.
- Independent utility
It means utility obtained from commodity x is not dependent on utility obtained from commodity y. It is not affected by the consumption of other commodities.