(i) Consumer is rational.
(ii) No limit on money income.
(iii) Utility cardinally measurable.
(iv) Diminishing marginal utility of money.
(v) Diminishing marginal utility of commodities.
(vi) Maximization of satisfaction.
(vii) For calculating total utility, individual utilities of commodities are to be multiplied.
Codes :
Cardinal Utility Approach Assumptions
The Cardinal utility approach makes several key assumptions about consumer behavior to analyze how consumers make choices to maximize their satisfaction.
Core Assumptions
Based on the theory, the valid assumptions related to the Cardinal utility approach are:
- (i) Consumer is rational: Consumers are assumed to have stable preferences and aim to maximize their total utility.
- (iii) Utility cardinally measurable: Utility, representing satisfaction, can be measured quantitatively using specific units (like 'utils').
- (v) Diminishing marginal utility of commodities: As a consumer consumes more units of a specific commodity, the additional satisfaction (marginal utility) derived from each extra unit decreases. This is also known as the Law of Diminishing Marginal Utility.
- (vi) Maximization of satisfaction: The primary goal of a rational consumer is to achieve the highest possible level of satisfaction or utility given their income and prices.
Assumptions Not Part of the Core Theory
The following points are generally not considered core assumptions of the basic Cardinal utility model:
- (ii) No limit on money income: This contradicts the concept of a budget constraint, which is essential for analyzing consumer choice under scarcity.
- (iv) Diminishing marginal utility of money: While sometimes discussed, the standard Cardinal approach often assumes a *constant* marginal utility of money for simplicity in calculations involving multiple goods.
- (vii) For calculating total utility, individual utilities of commodities are to be multiplied: Total utility is calculated by *summing* the marginal utilities of different units consumed, not multiplying them.
Therefore, the correct set of assumptions is (i), (iii), (v), and (vi).
Important Questions from Consumer behaviour
In relation to theory of consumers behaviour, which of the following statements is INCORRECT?
The concept of consumer surplus was propounded by __________.
Goods whose demand varies inversely with income are called ____ goods.
_____ have an income elasticity of demand of between 0 and +1.
According to ____ theory, a consumer will continue to buy such products that will deliver him the most utility or maximum satisfaction at relative prices.
