Cardinal Utility Assumptions Explained

Cardinal utility analysis is built on specific foundational assumptions about how consumers make choices. Let's evaluate each statement:

• I. Utility is a measurable and quantifiable entity.

  This is a core tenet of cardinal utility. It assumes that utility, the satisfaction derived from consuming a good or service, can be measured numerically, similar to how we measure weight or height. Consumers are thought to be able to assign specific values (e.g., 'utils') to different levels of satisfaction.

  Status: Correct Assumption

• II. Marginal utility of money changes with changes in real income.

  While the marginal utility of goods diminishes, the marginal utility of money is often assumed to be constant for practical purposes in basic cardinal analysis, or it diminishes as one holds more money. The statement that it *changes with real income* isn't a primary, distinct assumption defining the cardinal approach itself, though related concepts exist.

  Status: Incorrect Assumption

• III. Utilities derived from various goods are inter-dependent.

  Cardinal utility analysis typically assumes that the utility gained from one good is independent of the utility gained from other goods. Interdependence is more characteristic of ordinal utility concepts or specific commodity relationships, not a basic assumption here.

  Status: Incorrect Assumption

• IV. The use of introspective method in judging the behaviour of marginal utility.

  Cardinal utility relies partly on introspection – observing one's own psychological response – to establish principles like the law of diminishing marginal utility. While not strictly empirical in a laboratory sense, this method of reasoning is accepted as part of the foundation for cardinal utility theory.

  Status: Correct Assumption

Conclusion on Assumptions

Based on the analysis, statements I and IV represent the fundamental assumptions underlying cardinal utility analysis.

Therefore, the correct combination is I and IV.