Answer to Question #166884 in Microeconomics for Catherine

Question

the cardinal quantification of utility is not necessary to determine how a consumer should balance his consumption

Answer 1

Solution:

The cardinal qualification of utility is a concept that economic welfare can be directly observable and be given a value. For example, individuals may be able to express the utility that consumption gives for specific goods and that the value of cardinal utility is associated with the price you are willing to pay. It states that the utility of each commodity is measurable, and the most convenient measure is money. The utility is measured by the monetary units that the consumer is willing to pay for another unit of the commodity.

Cardinal utility is not necessary to determine how a consumer should balance his consumption between two products, because a number of difficulties are experienced in the measurement of utility. This is because of the fact that the utility derived by a consumer from a particular product depends on multiple factors, such as changes in consumer's tastes, moods, and preferences. These factors are not possible to establish and measure. The utility derived from the various products cannot be measured objectively. Also, the assumption of the constant utility of money is also unrealistic, since income increases the marginal utility of money changes, therefore, making money to be a poor measuring rod of utility.