Discuss the cardinal utility theory.﻿

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Karen P.L. Hardison | College Teacher | eNotes Employee

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Concerning cardinal utility theory, the concept of utility is related to the field of microeconomics, which studies economies at the individual household level (as opposed to macroeconomics studying economies in society in both public and private institutions). Utility refers to a consumer's satisfaction with expenditures of income, including savings, investment, household expenditures and any sort of discretionary expenditures. Utility theory holds that benefit from each expenditure can be measured as a function of the utility of each expenditure. For instance, buying food would have a high utility rating compared to buying a discretionary manicure. Cardinal utility theory is one means of rating expenditure utility by assigning a numerical value to each expenditure. Numerical values are assigned by using cardinal numbers, which are 1, 2, 3, 4, 5, etc., hence the name cardinal utility theory. The difficulty microeconomists (and consumers) encounter is that consumers don't often think of the utility value of expenditures in terms of numerical value. A competing theory is ordinal utility theory in which consumer preference is assigned in terms of first, second, third, fourth, fifth, etc, without trying to evaluate actual utility value. The util is the unit for measuring utility.

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coolseo | Student, Grade 9 | (Level 1) Honors

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