Skip to main content

Discuss the Cardinal Utility Theory. How do the cardinalists derive the demand curve? What are its drawbacks?

Cardinal Utility Theory is a method which assumes that satisfaction can be measured using the unit of ‘util’.

The cardinal utility theory treats utility as something that can be measured in absolute terms. We can measure a person and say the person is 1.7 meters tall. So too, these theorists say, we can measure the utility a person gets from a good or service and say they get 1.7 utils, for example, from it.

This is in contrast to ordinal utility theory which simply says that a person gets more utility from good A than good B.

Cardinal utility is helpful for teaching about marginal utility and things like that. However, it seems to me that it is quite impossible to measure utility in a cardinal way. I can only talk about how much satisfaction I get from buying a book by comparing it to what I get from watching a movie. I cannot put a number on the book without reference to other things.

A simple example of cardinality. Y=2x+3
Graph of cardinality. Y=2x+3

Comments

Popular posts from this blog

Case Study: A perfect competition

In 1997, over $700 billion purchases were charged on credit cards, and this total is increasing at a rate of over 10 per cent a year. At first glance, the credit card market would seem to be a rather concentrated industry. Visa, MasterCard and American Express are the most familiar names, and over 60 per cent of all charges are made using one of these three cards. But on closer examination, the industry seems to exhibit most characteristics of perfect competition. Consider first the size and distribution of buyers and sellers. Although Visa, Mastercard and American Express are the choices of the majority of consumers, these cards do not originate from just three firms. In fact, there are over six thousand enterprises (primarily banks and credit unions) in the US that offer charge cards to over 90 million credit card holders. One person's Visa card may have been issued by his company's credit union in Los Angeles, while a next door neighbour may have acquired hers from a Miami B

What is the responsibility of business towards society? Why is social responsibility at a low pitch in India?

Responsibility of business towards society A society consists of individuals, groups, organizations, families etc. They all are the members of the society. They interact with each other and are also dependent on each other in almost all activities. Thus, it has certain responsibilities towards society, which may be as follows: to help the weaker and backward sections of the society to preserve and promote social and cultural values to generate employment to protect the environment to conserve natural resources and wildlife to promote sports and culture to provide assistance in the field of developmental research on education, medical science, technology etc. In other words, the responsibility of business towards society are: Protection of environment. Better living conditions like housing, transport, canteen, crèches etc. Promotion of sports and culture. Opportunity for better career prospects Regular supply of goods and services Proper working conditions an

Case Study: Human Resource Planning - What is that?

You are a human resource consultant. The newly appointed president of a large paper manufacturing firm has called you: President : I have been in this job for about one month now, and all I seem to do is interview people and listen to personal problems. You : Why have you been interviewing people? Don't you have a human resource department? President : Yes, we do. However, the human resource department does not hire top management people. As soon as I took over, I found out that two of my vice presidents were retiring and we had no one to replace them. You : Have you hired anyone? President : Yes, I have, and that is part of the problem. I hired a person from the outside. As soon as the announcement was made, one of my department heads came in and resigned. She said she had wanted that job as vice president for eight years. She was angry because we had hired someone from outside. How was I supposed to know she wanted the job? You : What have you done about the other vice pre