Cardinal theory - consumer choice concerning utility, Microeconomics

Assignment Help:

Cardinal Theory:

An Introduction In cardinal approach, utility is measured cardinally or numerically in terms of money. The consumer not only knows which one is preferred but also by what amount. The assumptions of this approach is given below: 

1) Consumer is rational. Implication: The consumer's objective is to maximise her utility by choosing one of the commodity bundle from all other available commodity bundles at given prices of commodities and money income. 

2) If the taste and preferences are given, the total utility of the consumer depends on the quantity of consumption. 

3) Goods are good. Implication: Let 'U' denote utility level of the consumer and let 'x' be the consumption bundle. As 'x' increases (decreases) 'U' increases (decreases). Therefore, marginal utility is positive.  

4) Marginal utility of 'x' is diminishing. Implication: As 'x' increases (decreases) MUx  decreases (increases). Therefore, MUx curve is downward sloping  

5) Utility is measured cardinally or numerically in terms of money. 

Implication: Since it is measured numerically consumer not only knows which commodity bundle is preferred but also by how much amount. 

6) Marginal utility of money is constant.  

Implication:

MUm =λ where λ is positive and constant. That means as money income increases (decreases) by one unit, utility increases (decreases) by λ unit.  


Related Discussions:- Cardinal theory - consumer choice concerning utility

Oligopoly, stackelberg,bertnart,cournet about oligopoly

stackelberg,bertnart,cournet about oligopoly

Microeconomics, #question.Question: Answer all parts (a, b, c, d, e & f). ...

#question.Question: Answer all parts (a, b, c, d, e & f). Consider the following insurance market. There are two states of the world, B and G, and two types of consumers, H and L,

Determine comchip optimal output, You are the CEO of Comchip, a firm that s...

You are the CEO of Comchip, a firm that sells specialized computers. Each of the firm's computers contain a unique chip that is produced at Comchip's west coast plant at a cost of

Policies for social infrastructure development, POLICIES FOR SOCIAL  INFRA...

POLICIES FOR SOCIAL  INFRASTRUCTURE DEVELOPMENT: The origin of official policies for social infrastructure development is the National Policy of Education, 1986 for the develo

What is a natural monopoly, What is a natural monopoly Define natural m...

What is a natural monopoly Define natural monopoly as a situation where the advantages of scale a fixed costs are so high that it is impossible to fully exploit them. MC and AC

Differentiate between the short and the long run, Problem 1: i) Differe...

Problem 1: i) Differentiate between the short and the long run. ii) How is production characterised the short run? Explain the fully using numerical and diagrammatic illustr

Consumer choice, Suppose a family earns £1,500 per month and can either pay...

Suppose a family earns £1,500 per month and can either pay £0.50 per square foot in monthly rent for an apartment in the private rental market, or accept a 1,500 square foot house

Current economic climate, a) Provide a detailed valuation of an equity inve...

a) Provide a detailed valuation of an equity investment decision in the current economic climate. Your briefing should include: i) A review of the 'top-down' analysis that led

The hypothesis of rational expectations, The Hypothesis of Rational Expecta...

The Hypothesis of Rational Expectations : In the General Theory (Keynes, 1936) we noted that the state of expectations was taken as given. There was, in addition, explici

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd