3 Questions
Which assumption is made by cardinal utility theory?
The marginal utility of money is constant
What is the main difference between cardinal and ordinal utility theory?
The way utility is measured
What is the objective of the consumer according to utility theory?
To maximize satisfaction
Study Notes
- There are two approaches to measure consumer's utility: cardinal and ordinal.
- Cardinal utility theory postulates that utility can be measured objectively in units called utils.
- The theory assumes rationality of consumers and constant marginal utility of money.
- It also assumes diminishing marginal utility, where the utility of each successive unit of a commodity diminishes.
- The total utility of a basket of goods depends on the quantities of individual commodities.
- The ordinalist school believes utility cannot be measured in cardinal numbers, but consumers can rank or order the utility they derive from different goods.
- The main objective of the consumer is to maximize satisfaction given limited budget or income.
- Utility is measured in subjective units called utils.
- A given unit of money deserves the same value at any time or place it is to be spent.
- The marginal utility of a commodity diminishes as the consumer acquires larger quantities of it.
Test your knowledge on consumer utility theory with this insightful quiz! Explore the differences between cardinal and ordinal approaches, and learn about the assumptions made in each. Discover how consumers rank their utility and how they maximize satisfaction given their budget. Measure your understanding of utility measurement and the concept of diminishing marginal utility. Challenge yourself with this quiz and see how well you understand consumer behavior and decision making.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
