Economy

The Cardinal Approach

The major exponent of this approach Alfred Marshall (1842-1924) and his followers are of the view that utility can be measured numerically and it can be expressed in cardinal numbers like 1, 2, 3, etc; hence it is called cardinal utility approach.

Util is the unit which is used for the measurement of utility in this approach.

Cardinal Utility Approach based on Two Laws

Law of Diminishing Marginal Utility

Law of Equi – Marginal Utility

We are unable to understand these laws until and unless we are clear about various aspects of the concept of utility.

Utility and its Various Aspects

Bentham (1748-1831); an English philosopher introduced the concept of utility in social sciences. Jevons (1835-1882), a neo-classical economist incorporated this important concept in economics literature to explain the consumer’s behaviour.

Now we define and discuss the various aspects of utility

Utility

Utility is the power of a good or service to satisfy human wants. It is the amount of satisfaction, which a consumer obtains from consuming a good or service during some specific period of time.

The various aspects of utility can be explained with the help of the following table:

Units of Commodity A (Qa)TUaMUa
11010
2188
3224
4220
516– 6
Total utility

The utility obtained from all the units of a good or service over a given period of time is called total utility. We find total utility by adding marginal utilities of each successive unit of particular good or service during the given time period i.e.,

Theory of Consumer Behaviour in Economic Perspective

In the given table, total utility by the consumption of 2 units is 10+8 = 18; TU by the consumption of 3 units is 10+8+4=22 and so on

Marginal Utility
Theory of Consumer Behaviour in Economic Perspective

Net addition to the total utility due to the consumption of an extra unit of a good or service is called marginal utility, i.e. . The given table shows that when the consumer consumes 2nd unit, marginal utility i.e. net addition to the total utility is 18-10=8 and when he consumes 3rd unit, MUa will be 22-18=4 and so on….

Initial Utility

The utility of very first unit of a good or service is called initial utility. At initial utility, MU=TU. In the given table, 10 is initial utility which is marginal as well as total utility.

Positive Utility

With the consecutive consumption of any good or service, marginal utility decreases and finally it reaches to zero. When the marginal utility is equal to zero, total utility is maximum

Now if MU has not reached zero and TU is increasing, the utility is positive until and unless MU = 0 and total utility is maximized. In a nutshell, if MU>0, it reflects that utility is positive.  In the given table, up to the 3rd unit of the commodity, a utility is positive.

Zero Utility: (Point of Saturation)

If MU = 0, it is said that utility is zero. It declares a saturation point. In the given schedule, saturation point appears on the 4th unit at which MU = 0.

Negative Utility

If MU < 0, it is said that a consumer has negative utility. The given table shows that after the consumption of the 4th unit, marginal utility is negative and which is enough to declare that utility is negative.

It is worth – Mentioning here That

  • A utility is a psychological phenomenon; the utility of an apple is higher for a Patient who has been advised by his doctor to eat an apple as compared with an ordinary consumer of an apple.
  • The utility is subjective in nature; it differs from person to person.
  • The utility is value-neutral; misuse of a cell phone.
  • Utility and usefulness are entirely different concepts and should not be confused; smoking does provide satisfaction or utility to a smoker but it is injurious to health.

The Relationship between Marginal Utility and Total Utility

The empirical evidence shows that MU and TU of any good or services are closely related. We can explain this close relationship between MU and TU  in the light of given table.

MU is the rate of change in TU due to change in quantity consumed, i.e.,

Theory of Consumer Behaviour in Economic Perspective

For example, in the given table when the consumer consumes the 2nd unit

Theory of Consumer Behaviour in Economic Perspective

As long as MU is positive, TU increases. In the given table up to the 3rd unit, MU is positive and total utility increases.

When MU is zero, TU is the maximum (saturation point). This stage appears in the table at the consumption of the 4th unit.

When MU is negative, TU is diminishing. At the 5th unit, MU is negative due to which TU decreases.

MU of n unit = TU of n units- TU of n –1 unit, i.e. MUn = TUn – TUn–1

In the given table, let n = 3 then TU of 3 units = 22,TU of 2 units =18, MU of 3 units=TU3 – TU2 = 22–18 = 6

The relationship between TU and MU can further be explained with the help of the following diagram:

Theory of Consumer Behaviour in Economic Perspective

The diagram shows that. For example

Theory of Consumer Behaviour in Economic Perspective
Theory of Consumer Behaviour in Economic Perspective

Moreover, the diagram shows that with the consecutive consumption of a good or service, MU decreases while TU increases. This increase in TU continues until the saturation point when MU = 0. At the 4th unit, MU = 0 and TU is maximum.

Hence the 4th unit shows the saturation point. The diagram also shows that when MU is negative, the slope of the TU curve is also negative which means that negative MU leads to decrease in TU.

After clear comprehension of the concept of utility and its various aspects, now we discuss the basic pillars of the cardinal utility approach.

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