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Cardinal Utility Theory

 Classical economists like Carl Menger, Jeremy Bentham, Leon Walras and neo-classical economists like Alfred Marshall believe that utility can be measured in quantitative figures just as height and weight. It gives absolute figures of utility.

Assumptions of Cardinal Utility Theory:

  • It is assumed that the consumer is rational in nature, he will spend his money on that commodity first which yields the highest utility and the last which gives the least utility.
  • Utilities derived from different commodities are independent of each other.
  • Limited money income of a consumer to spend on goods.
  • The consumer tries to maximise his satisfaction with spending.
  • It is assumed that the utility gained from the successive units of a commodity consumed, decreases as a person consumes more of them.
  • The marginal utility of money remains constant, whatever be the level of a consumer income.
    Unity of additive Un = U.x1 + U.x2 + ... + U.xn

Limitations of Cardinal Utility Theory:

  • The utility is not quantifiable.
  • Money is not a perfect measure of utility as its marginal utility is constant.
  • It does not study price effect, substitution effect and income effect.
  • It cannot explain the behaviour of demand for goods that cannot be divided.
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