What is Cardinal Utility Approach?
The cardinal utility approach was founded by Alfred Marshall. He was one of the most influential economists of his time. Alfred Marshall was regarded as the father of neoclassical economics. He contributed to the introduction of demand and supply concepts as well. As of now, we will discuss Alfred Marshall Cardinal Utility Approach. Let’s learn.
Cardinal Utility Approach
We learned about consumer behavior, which is the one where a consumer spends his entire income in various goods and services in such a way that he gets maximum satisfaction. Now, this is required to understand the concept of cardinal utility approach. Cardinal means anything which can be measured in terms of numbers. For example, 1,2,3, etc. We assume the units for the measurement under this approach as ‘Utils’. For example, a basket of orange offers 10 utils of utility to a consumer.
What are the characteristics of Utility?
Utility means use-value. The following are the basic characteristics of utility:
- The utility is a quantitative measure of satisfaction, which means it can be represented in terms of numbers or quantity.
- Utility depends on the intensity of wants. For example, the Air conditioner will be more valued in the summer season compared to the winter season, due to the high intensity of wants of air conditioners.
- The utility is subjective, which means, it varies from person to person and from place to time. For example, some people will prefer watching movies in the theatre compared to walking in the parks, others might prefer walking compared to watching movies.
- The utility can be cardinal, that is it can be measured in numbers or utility can be ordinal, that is it can be ranked.
What are the components of utility?
Utility has two components:
- Total Utility(TU) = Summation of Marginal Utility
- Marginal Utility(MU) = Change in Total Utility/ Change in Units consumed
- Total Utility: It refers to the total satisfaction obtained from the consumption of all possible units of a commodity.
- Marginal Utility: It is the additional utility derived from the consumption of one more unit of the given commodity.
What is the relationship between TU and MU?
In order to study there relationship, we will construct an imaginary table and we will plot TU and MU curve graphically.
|Units Consumed||Total Utility(TU)||Marginal Utility(MU) Formula used|
From the table and the graph we can observe the following relationship between TU and MU:
- When TU is increasing, MU is decreasing.
- MU becomes 0, when TU is at its maximum,
- When TU starts falling, MU becomes negative.
- We also know, the formula of TU= Cumulative summation of MU.
- MU is also called the slope of the TU curve because MU = Change in TU/ Change in units.
- When units consumed are 0, then TU is 0, and MU is not defined.
- MU can be 0 or negative, but TU can never be negative.
Test Yourself with this Mini Assignment
- Calculate MU from the following data:
|Units Consumed||Total Utility||Marginal Utility|
- Calculate MU from the following table:
|Quantity Consumed||Total Utility||Marginal Utility|
Send an email with your answers at Contact@LearnWithAnjali.Com