Cardinal utility

economic-dictionary

Cardinal utility is an economic concept according to which the utility or satisfaction that a person obtains from consuming a certain good or service is directly observable and quantifiable.

Cardinal utility is an exact measure of the utility that consumers obtain from each good or service. The units of measurement used are the "tools" and with them it is possible to carry out additive operations, orderings and comparisons as is done with numbers.

Cardinal utility assigns a certain value to the consumption of a basket of goods and services, a value that depends on consumer preferences and the quantity of each good consumed.

Consumer theory

Advantages of cardinal utility

Cardinal utility has several advantages, among which are:

  • It allows to know exactly how much a person values ​​a good or service.
  • It is possible to order the goods and services according to their greater or lesser utility.
  • Direct comparisons can be made between the assessments made by different consumers.
  • It is feasible to calculate exactly the marginal utility reported by the consumption of an additional unit of the good or service.
  • The preferences of a consumer can be graphed using a curve whose axes are the quantity consumed and the "tools" obtained.

Next, we see the total and marginal utility curves where the concept of cardinal utility is applied since each quantity consumed has been assigned an exact and measurable value.

Disadvantages of cardinal utility

Cardinal utility in practice does not exist. It is not possible to measure exactly how satisfied a person is with the consumption of a certain good. Any number we assign will be arbitrary and in no case will it be possible to make interpersonal comparisons.

Cardinal utility is a fiction that has theoretical utility, but does not conform to reality. People are complex and measuring the value they place on goods and services is misleading.

In any case, the impossibility of an exact utility is not an impediment to doing economic analysis. Some economists have proposed the use of ordinal utility that instead of assigning exact values ​​focuses on order or priority.

Tags:  banking banks comparisons 

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