What are the assumptions of Cardinal approach?

The cardinal utility approach assumes that money must measure the same amount of utility under all circumstances. To put simply, the utility derived from each unit of money remains constant.

What are the conditions for consumer equilibrium in Cardinal approach?

We can generalize equilibrium condition as; consumer’s equilibrium will be when MUX/PX=MUY/PY and at the same time, the consumer must spend the entire income on the purchase of the two commodities. The total utility that consumer obtains from his/her income of Rs.

What are the assumptions of consumers equilibrium?

The consumer consumes only two goods (X and Y). The goods are homogenous and perfectly divisible. Prices of the goods and income of the consumer are constant. The indifference map for goods X and Y are given.

What is cardinal utility approach what are its assumptions and limitations?

The limitation of cardinal utility analysis is the difficulty in assigning numerical value to a concept of utility. Utility is comparable on a scale, but not easily quantifiable. In other words, the utility of a good or service cannot simply be measured in numbers in order to determine its economic value.

What is consumer equilibrium?

Consumer’s equilibrium refers to the situation when a consumer is having maximum satisfaction with his limited income and has no tendency to change his way of existing expenditure. The consumer has to pay a price for each unit of the commodity. So he cannot buy or consume unlimited quantity.

How does a consumer reach equilibrium in case of cardinal utility theory?

Consumer equilibrium is achieved when the consumer buys two units because at this point quantity and utility gained is maximum and MU (Rs. 3) is equal to price (Rs. 3).

What are the conditions of consumer’s equilibrium under utility analysis?

According to Mashallian utility analysis, when expenditure of a consumer has been completely adjusted, that is, when marginal utility in each direction of his purchases is the same, it is called consumer’s equilibrium. Then he has no desire to buy any more of one commodity and less of another.

What are the assumptions of utility analysis?

In economics, utility theory governs individual decision making. The student must understand an intuitive explanation for the assumptions: completeness, monotonicity, mix-is-better, and rationality (also called transitivity).

Which of the following is an assumption of consumer equilibrium through utility analysis?

Utility Analysis studies consumer’s equilibrium on the assumption that utility can be expressed in terms of units like 2, 4, 6. Indifference Curve Analysis, on the other hand, assumes that utility cannot be expressed in terms of units; it can at best be compared.

How consumer equilibrium is determined?

To determine the equilibrium point, consumer compares the price (or cost) of the given commodity with its utility (satisfaction or benefit). Being a rational consumer, he will be at equilibrium when marginal utility is equal to price paid for the commodity.

How is consumer equilibrium achieved?

Therefore, we can say that consumers equilibrium is achieved when the price line is tangential to the indifference curve. Or, when the marginal rate of substitution of the goods X and Y is equal to the ratio between the prices of the two goods.

On which of the following assumptions the theory of consumer Behaviour on cardinal utility approach is not based?

Therefore, from the above explanation, diminishing marginal utility of money is not the appropriate assumption considered under the theory of consumer behavior on the cardinal utility approach.