Question

what is cardinal utility theory​

Answer 1

Answer:

Cardinal Utility is the idea that economic welfare can be directly observable and be given a value. For example, people may be able to express the utility that consumption gives for certain goods. ... The idea of cardinal utility is important to rational choice theory.

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Answer 2

Answer:

Cardinal Utility is the idea that economic welfare can be directly observable and be given a value.

For example, people may be able to express the utility that consumption gives for certain goods. For example, if a Nissan car gives 5,000 units of utility, a BMW car would give 8,000 units. This is important for welfare economics which tries to put values on consumption. For example, allocative efficiency is said to occur when Marginal cost = Marginal Utility.

One way to try and put values on goods utility is to see what price they are willing to pay for a good.

If we are willing to pay £5,000 for a second-hand Nissan Car, we can infer we must get 5,000 utils. In other words, the value of cardinal utility is related to the price we are willing to pay.

The idea of cardinal utility is important to rational choice theory. The idea consumers make optimal choices to maximize their utility.