Answer to Question #166661 in Microeconomics for Asare Owusu Isaac

Question

ASSIGNMENT 1

"The Cardinal quantification of utility is not necessary to determine how a consumer to balance his commodity X AND Y". Coat and uncoat the system. Provide a simple proof.

Answer 1

Cardinal utility refers to assigning different commodities a certain numerical value called utils(util in singular form) that show the level of preference by a consumer for different goods. For example, a consumer may place cardinal utilities of 2000 utils and 3000 utils for a Toyota Extrail and Toyota Lexus respectively. This shows that the consumer prefers the latter to the former in terms of utility.

Whereas the numeral values show the preference level, they are mainly derived from prices of the commodities. Like in our case, the two vehicles may be valued at 2000 dollars and 3000 dollars respectively. This may therefore not be real order of preference for the consumer. 

The consumer may be more satisfied with some features in the commodity with less utility and not well served by others in the second commodity. Therefore, cardinal quantification may not serve so well as an indicator of consumer's preference.

Also the company may have overrated the price of a Harrier but no as superior to the other in terms of standards. In this case the cardinal numbers may only be considered as arbitrary values but not true indication of what the consumer likes more.