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Understanding Cardinal Utility Theory

The cardinal utility states that the level of satisfaction a consumer acquires after consuming any goods and services can be measurable and expressed in quantitative numbers. As goods and services are consumed, a certain amount of satisfaction results, known as total utility. As each additional unit is consumed, total utility changes and marginal utility is the change in total utility divided by the change in units consumed. The law of diminishing marginal utility explains that as a person consumes more of an item, the satisfaction they derive from it wanes and demand curves slope downward in economic models since each additional unit is put toward a less valuable use.

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54 views3 pages

Understanding Cardinal Utility Theory

The cardinal utility states that the level of satisfaction a consumer acquires after consuming any goods and services can be measurable and expressed in quantitative numbers. As goods and services are consumed, a certain amount of satisfaction results, known as total utility. As each additional unit is consumed, total utility changes and marginal utility is the change in total utility divided by the change in units consumed. The law of diminishing marginal utility explains that as a person consumes more of an item, the satisfaction they derive from it wanes and demand curves slope downward in economic models since each additional unit is put toward a less valuable use.

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annuduson
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The cardinal utility states that the level of satisfaction a consumer

acquires after consuming any goods and services can be measurable


and expressed in quantitative numbers. n economics, a cardinal utility function or
scale is a utility index that preserves preference orderings uniquely up to positive affine
transformations.[1][2] Two utility indices are related by an affine transformation if for the value of one
index u, occurring at any quantity of the goods bundle being evaluated, the corresponding value of
the other index v satisfies a relationship of the form

,
for fixed constants a and b. Thus the utility functions themselves are related by
The two indices differ only with respect to scale and origin.[1] Thus if one is concave, so is the
other, in which case there is often said to be diminishing marginal utility.

As these goods and services are consumed, a certain amount of


satisfaction, value, or benefit results. This is known as the total utility.
As each additional unit of goods or services is consumed, the total
utility changes. The change in total utility divided by the change in
units consumed is the marginal utility.

The law of diminishing marginal utility explains that as a person


consumes more of an item or product, the satisfaction (utility) they
derive from the product wanes. Demand curves are downward sloping
in microeconomic models since each additional unit of a good or
service is put toward a less valuable use. What Is the Law of
Diminishing Marginal Utility?
The law of diminishing marginal utility states that all else equal, as
consumption increases, the marginal utility derived from each additional unit
declines. Marginal utility is the incremental increase in utility that results from
the consumption of one additional unit. "Utility" is an economic term used to
represent satisfaction or happiness.

In simple terms, the law of diminishing marginal utility means that the more of
an item that you use or consume, the less satisfaction you get from each
additional unit consumed or used.

KEY TAKEAWAYS

 The law of diminishing marginal utility says that the marginal utility from
each additional unit declines as consumption increases.1
 The marginal utility can decline into negative utility, as it may become
entirely unfavorable to consume another unit of any product.
 The marginal utility may decrease into negative utility, as it may
become entirely unfavorable to consume another unit of any product.

n economics, an ordinal utility function is a function representing the


preferences of an agent on an ordinal scale. Ordinal utility theory
claims that it is only meaningful to ask which option is better than the
other, but it is meaningless to ask how much better it is or how good it
is.
What is the concept of ordinal utility? The concept of ordinal utility
states that the level of satisfaction a consumer obtains after
consuming various commodities cannot be measured in numbers but
can be arranged in the order of preference.
What is the meaning of ordinal approach?
The concept of ordinal utility implies that the consumer cannot go beyond stating his
preference or indifference. In other words, if a consumer prefers A to B, he can not tell
by 'how much' he prefers A to B
Definition An indifference curve is a curve which shows all the
combinations of two products that will provide the consumer with
equal levels of satisfaction or utility. The combinations are equally
desirable and the consumer is thus indifferent between them.

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