Cardinal Utility Theory

 Classical economists like Carl Menger, Jeremy Bentham, Leon Walras and neo-classical economists like Alfred Marshall believe that utility can be measured in quantitative figures just as height and weight. It gives absolute figures of utility.

Assumptions of Cardinal Utility Theory:

• It is assumed that the consumer is rational in nature, he will spend his money on that commodity first which yields the highest utility and the last which gives the least utility.
• Utilities derived from different commodities are independent of each other.
• Limited money income of a consumer to spend on goods.
• The consumer tries to maximise his satisfaction with spending.
• It is assumed that the utility gained from the successive units of a commodity consumed, decreases as a person consumes more of them.
• The marginal utility of money remains constant, whatever be the level of a consumer income.
  Unity of additive U_n = U.x₁ + U.x₂ + ... + U.x_n

Limitations of Cardinal Utility Theory:

• The utility is not quantifiable.
• Money is not a perfect measure of utility as its marginal utility is constant.
• It does not study price effect, substitution effect and income effect.
• It cannot explain the behaviour of demand for goods that cannot be divided.