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Discuss the cardinal utility theory.

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pal13 | Student, Undergraduate | eNotes Newbie

Posted October 7, 2010 at 5:36 PM via web

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Discuss the cardinal utility theory.

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K.P.L. Hardison | College Teacher | eNotes Employee

Posted October 10, 2010 at 2:34 AM (Answer #1)

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Concerning cardinal utility theory, the concept of utility is related to the field of microeconomics, which studies economies at the individual household level (as opposed to macroeconomics studying economies in society in both public and private institutions). Utility refers to a consumer's satisfaction with expenditures of income, including savings, investment, household expenditures and any sort of discretionary expenditures. Utility theory holds that benefit from each expenditure can be measured as a function of the utility of each expenditure. For instance, buying food would have a high utility rating compared to buying a discretionary manicure. Cardinal utility theory is one means of rating expenditure utility by assigning a numerical value to each expenditure. Numerical values are assigned by using cardinal numbers, which are 1, 2, 3, 4, 5, etc., hence the name cardinal utility theory. The difficulty microeconomists (and consumers) encounter is that consumers don't often think of the utility value of expenditures in terms of numerical value. A competing theory is ordinal utility theory in which consumer preference is assigned in terms of first, second, third, fourth, fifth, etc, without trying to evaluate actual utility value. The util is the unit for measuring utility.

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coolseo | Student , Grade 9 | Honors

Posted October 7, 2010 at 7:04 PM (Answer #2)

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In economics, utility refers to the satisfaction or benefits consumer derive from consuming a product or service. The willingness of consumers to pay a given price for a product or service, and the choice of all the quantities of goods and services purchased by them depends on the quantity of utility they expect to derive from different goods. All such discussions of utility and its impact on demand and other economic behavior assumes that utility is a variable which can be measured and represented in terms of numerical cardinal quantities. This assumption of measurably of utility is not accepted by all economists. When utility as treated as something can be measured and its quantity represented in numbers, it is called cardinal utility. An alternate approach maintains it is possible to compare two different utilities and say which one is greater and which one is smaller, but it in not possible to assign a number to its quantity. Utility treated this way is called ordinal utility. The concept of ordinal utility implies that it is possible ti arrange different utilities according to the amount of satisfaction, but it is not possible to measure utility.

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