UNIVERSITY OF CAPE COAST,

DEPARTMENT OF ECONOMICS,
ELEMENTS OF ECONOMICS 1 (ECO 201).
ASSIGNMENT 1
1ST SEMESTER 2009/2010
Question:
Utility is always and everywhere a Cardinal
Utility is always and everywhere a Cardinal
Measure, Discuss.
Measure, Discuss.
Charles
CharlesTurkson
Turkson
Index No.:SB/BMS/08/0005
LEVEL 200
August 2009
LECTURER:MR.
MR.NKANSAH
NKANSAH
The statement that, “UTILITY IS ALWAYS AND EVERYWHERE ACARDINAL
MEASURE” is difficult to explain. Different groups of peoplehave said different things or
shared different thoughts of UTILITYover the years. To really know if Utility is always and
everywhere a

cardinal measure it is important to first understand the keywordsused in the statement. The
keywords are; Utility and CardinalMeasure.
UTILITY
Utility, a want satisfying power of a good or service or thesatisfaction or pleasure a consumer
obtains from the consumption ofa good or service, is subjective and difficult to measure. Utility
issimply an abstraction useful for explaining Consumer Behaviour. Thetheory attempts to
explain how an individual consumer couldmaximize his satisfaction from his limited income
given the marketprices of goods and services. In simple words the theory tries toaddress how an
individual consumer given the market prices ofgoods and services can behave rationally by
ensuring that hepurchases more of the commodity at lower price and purchases lessof the
commodity at a higher price. Utility is used by Economists torepresent satisfaction people derive
from these consumptionactivities. Utility is a concept that was introduced by Daniel
Bernoulli.He believed that for the usual person, utility increased with wealthbut at a decreasing
rate. Early Economist imagined that the utilityassociated with different activities might someday
be subjected toprecise measurement. The 19th century British Economist-JeremyBentham (1748-
1832) for example wrote of, A UTILOMETER, a deviceto measure amount of utility provided
by different consumptionactivities. Up till today no such device has been manufactured.
Toproperly understand the concept of utility it is important tounderstand the forms of utility.
There are three forms of utilitynamely; Marginal Utility, Average Utility and Total Utility.
Marginal Utility is the addition to the overall utility resulting from oneor a unit change in the
quantity consumed. In simple terms it is theadditional satisfaction derived from consuming an
additional unit of acommodity. It should also be known that additional satisfaction fromthe
continuous consumption of a commodity would tend to fall witheach successive unit consumed.
For example, after a hard day’s jobon a sunny day, a tired farmer will quickly drink the first glass
ofwater offered him. Successive glasses of water may be taken but notwith the enthusiasm
associated with the first glass of water. This iswhat is known as THE AXIOM OF
DIMINISHING MARGINAL UTILITY.Mathematically Marginal Utility is defined as the
change in TotalUtility over the change in Quantity consumed. That is,[MUx=
ΔTUx/ ΔQx]
Average Utility is the utility per unit of the quantity of a commodityconsumed. It is therefore the
ratio of total utility to that of thequantity consumed. For this reason Average utility would fall
butwould never be zero. It is mathematically represented as:[AUx=
TUx/ Qx]
Total Utility is the sum of marginal utilities. It is the overallsatisfaction from consuming a bundle
of commodity. In other words itis the entire amount of satisfaction that the consumer derives
from
2  | C. TURKSON – ASSIGNMENT
August 2009

consuming more or successive units of a particular commodity- this isin the case of one
commodity. The axiom of diminishing marginalutility does not affect total utility. This because
additional units of acommodity tend to increase its overall satisfaction. It
mathematicalrepresented as:[TUx = ΣM Ux]
CARDINAL MEASUREMENT
When something is said to be cardinally measurable it means that agiven interval between two
measures has a consistent meaning. Thatis, the measure corresponds to points along a straight
line. Forexample, height, output, and income are cardinally measurable. Ineconomics sense,
when Utility is said to be cardinal it means thatutility is measurable and the units of measurement
is UTILS. Thisreasons with just one of the three Schools of Thought as to utilitydetermination of
an individual. It is important to fairly understand theTheories employed to analyse the consumer
behaviour or utilitymaximization.
APPROACHES TO UTILITY ANALYSIS
There are three theories as to how the behaviour of a consumer as tothe satisfaction derived from
consuming a bundle of a commoditycan be analysed. All of these theories seek to explain why
more of acommodity is purchased at a lower price and less at a higher price.The theories are; The
Ordinalist Theory or the Indifference CurveTheory, The Cardinalist Theory or The Marginal
Utility Theory and theRevealed Preference Theory. Cardinal utility is a quantitativemeasure
whiles ordinal utility is a qualitative measure
Ordinalists such as E. Slushy, Wilfred Pareto and John Hicks are of
the view that utility is measurable in an ordinal sense that isconsumers can only rank market
baskets with regard to thesatisfaction they give them. That is one can say that He derives
moresatisfaction in consumingFUFU to consumingKONKONTE. They holdthe view that utility
derived from a commodity cannot be measuredin utils. They believe that utility is of a qualitative
measure.Ordinalists are never concerned with the specific units; they believethat consumers can
derive a given level of satisfaction fromconsuming different combinations of goods and services.
Theybelieve that once a consumer can achieve a given satisfactionthrough different combination,
then, he will be indifferent in hischoice of combination of goods. That is why the Ordinalists
theory isalso referred to as the INDIFFERENCE CURVE THEORY.
The Cardinalist assumes that figures could be assigned to different
types and levels of utility. They believe that individual units calledUTILS could be used to
measure Total, Marginal and Average Utilities.That is one can tell that for a example a Tuber of
Yam gives thatperson say 20Utils as to 5Utils derived from drinking a glass of water.They also
believe that based on the amount of utils assigned to aparticular commodity the consumer can
determine the amount to bepaid to maximise satisfaction. That is to say the amount of utils.