1.2. The Cardinal Utility Theory Flashcards
To get a higher level of satisfaction, the consumer must be able to _ the utility of the various baskets of goods that can be bought with the available income.
compare
According to _, utility is measurable like weight, height, and temperature
Cardinal Utility theory
In Cardinal Utility theory, there is a unit of measurement of satisfaction called ‘_’.
utils
The Cardinal School postulated that utility can be measured in ___ or by __.
monetary units (i.e., by the amount of money that the consumer is willing to pay for another unit of a commodity) or by subjective units called ‘utils’.
T/F
The Ordinal School assumes that the level of utility can be expressed in numbers.
False
Assumptions of Cardinal Utility Theory:
I . The consumer is Rational
II . Cardinal Utility
III . Constant Marginal Utility of money
IV . Diminishing Marginal Utility
V . The total utility of a basket of goods depends on the quantities of the individual commodities.
_: The main objective of the consumer is to maximize his/her satisfaction given his/her limited budget or income.
The consumer is Rational
In order to maximize his/her satisfaction, the consumer has to be _.
rational
Measurement of Utility are _ and _.
Total and Marginal Utility
_ refers to the total amount of satisfaction a consumer gets from consuming or possessing some specific quantities of a commodity (X) at a particular time.
Total Utility
As the consumer consumes more of a good (X) per time period, his/her total utility _.
increases
T/F
There is a saturation point for the commodity in total utility after which the consumer will be capable of enjoying greater satisfaction from it.
False
_ refers to the total utility derived from consuming n units of a commodity X.
TU
_ refers to the additional utility obtained from consuming an additional unit of a commodity.
Marginal Utility
_ is the change in total utility resulting from the consumption of one more unit of a product per unit of time.
Marginal utility
Mathematically, the formula for marginal utility is:
MU = /\ TU
_______
^
/\ Q
At the saturation point of total utility, marginal utility becomes _.
zero
When TU increase, MU _
decrease
When TU declines, MU is _
negative
After this maximum point of total utility,
if the consumer consumes more quantity of banana, their total utility decreases, which leads to _`.
dissatisfaction
T/F
The utility that a consumer gets by consuming a commodity for the first time is the same as the consumption of the good for the second, third, fourth, etc.
False
_ is central to the cardinal utility analysis of consumer behavior.
LDMU
_ states that as the quantity consumed of a commodity increases over a unit of time, the utility derived by the consumer from the successive units goes on decreasing, provided the consumption of all other goods remains constant.
LDMU
LDMU states that as the quantity consumed of a commodity increases over a unit of time, the utility
derived by the consumer from the successive units goes on decreasing, provided the consumption of all other goods remains _.
constant
TU increases with an increase in consumption of banana, but at a decreasing rate. It means that MU _ with _ in consumption.
decreases, increase
