The Marshallian utility analysis is based on a less valid assumption of :
given marginal utility of money
Marshall's cardinal utility analysis rests on several assumptions: utility is measurable in cardinal units, utilities of different goods are independent and additive, marginal utility of a good diminishes, and the marginal utility of money remains constant (given).
Of these, the assumption that the marginal utility of money stays constant is regarded as the least valid. Money is spent on many goods, and as a consumer's stock of money falls (or his income changes), the utility of each remaining rupee changes; it cannot remain fixed.
Constant marginal utility of money is also what lets Marshall use money price as a measure of utility. Hicks showed that once this assumption is dropped, the income effect of a price change cannot be ignored, which is why the Marshallian demand analysis fails to explain cases such as Giffen goods.
Diminishing marginal utility is an observed tendency and broadly valid, while cardinality and additivity are criticised too but are the basic framework of the approach rather than its weakest empirical premise.
Hence, the answer is given marginal utility of money.
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Important Questions from Utility analysis
Utility derived from consumption of an additional unit of a good is called
Which of the following statements is true?
The word ‘marginal’ means _____.
The law of diminishing marginal utility was propagated by:
- Ordinal utility analysis of the consumer's behaviour is considered superior to the cardinal utility analysis mainly due to
