Cardinal utility analysis
Also called: Cardinal approach, Cardinal utility · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
Cardinal utility analysis assumes that utility can be measured and written as numbers, like weight or length. It uses two measures. Total utility (TU) is the total satisfaction from all units consumed. Marginal utility (MU) is the extra satisfaction from one more unit. This approach gives the law of diminishing marginal utility and the law of equi-marginal utility. Its main weakness is that in real life nobody measures satisfaction in numbers. This led economists to the ordinal approach.
Example
A consumer says, "This shirt gives me 50 units of utility, and that pair of shoes gives me 30." Cardinal analysis treats these numbers as meaningful. So it treats the shirt as giving 20 units more satisfaction than the shoes.
Don't confuse with
- Ordinal utility analysis (Hicks and Allen, 1934): it only ranks bundles as better, worse or equal, without measuring by how much. It uses indifference curves.
Related concepts
- Total utility
- Marginal utility
- Law of diminishing marginal utility
- Law of equi-marginal utility
- Consumer surplus
- Diamond-water paradox