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Advantages and limitations of Cardinal utility approach​

Answer 1

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What Are the Limitations of Cardinal Utility Analysis?

The limitation of cardinal utility analysis is the difficulty in assigning numerical value to a concept of utility. Utility is comparable on a scale, but not easily quantifiable. In other words, the utility of a good or service cannot simply be measured in numbers in order to determine its economic value.

Utility is the ability of a good or service to satisfy the needs and wants of a consumer. Cardinal utility analysis attempts to quantify utility using cardinal numbers. Cardinal utility assumes that a single utility is measurable in its own right. This contrasts with ordinal utility, which holds that utility is comparable on a scale.

Answer 2

Advantages of Cardinal utility approach:

• The analysis attempts to quantify utility using cardinal numbers or weights.

• It can study a combination of two goods.

• It helps in giving a better classification of goods into substitutes and its complements.

• It explains the law of demand for goods or service to satisfy the needs and wants of a consumer.

• It is able to explain the ‘Law of Diminishing Marginal Utility’.

Disadvantages of the Cardinal Utility approach:

• There are unrealistic assumptions.

• There is difficulty in assigning a ‘numerical value’ to a concept of utility.

• The utility is comparable on a scale, but not ‘easily quantifiable’ or measured in numbers in order to determine its ‘economic value’.

• There are many factors that can influence the decision of the consumers.

Explanation:

• The approach of ‘Cardinal Utility’ approach is founded by the neo-classical economists.

• They believed that ‘utility’ can be measured and the customer can express his ‘satisfaction level’ in terms of cardinal or quantitative numbers, like 1,2,3.  

Learn more about Cardinal utility approach​

Briefly distinguish between the cardinal utility approach and ordinal utility approach to consumer behavior. Explain with illustration the law of eventual diminishing marginal utility?

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Distinguish between cardinal utility approach and ordinal utility approach to consumer behavior. How can a consumer attain equilibrium under ordinal utility approach? Explain with the help of diagram.

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