Question

What is a Cardinal Utility Analysis.

• A. Level of utility expressed in numbers.
• B. Level of utility expressed in score and terms
• C. Level of utility expressed in terms and condition
• D. Level of utility expressed in satisfaction and fit.

Hint:

Remember the difference between cardinal and ordinal numbers from mathematics. \textbf{Cardinal numbers} (1, 2, 100) tell you 'how many' (quantity). \textbf{Ordinal numbers} (1st, 2nd, 100th) tell you 'the position' (rank). This directly applies to utility theory.

Answer 1

The Correct Option is A

Step 1: Understanding Utility Theory:
In economics, 'utility' is a concept that represents the satisfaction or benefit a consumer derives from consuming a good or service. There are two main approaches to analyzing utility.

Step 2: Differentiating Cardinal and Ordinal Utility:


Cardinal Utility Analysis: This approach assumes that utility is measurable and quantifiable. It suggests that a consumer can express their satisfaction in absolute, numerical units, often called 'utils'. For example, a consumer can say that they get 10 utils of satisfaction from an apple and 20 utils from a banana, implying the banana provides twice the satisfaction of the apple. Thus, utility is expressed in cardinal numbers (1, 2, 3, etc.).
Ordinal Utility Analysis: This is a more modern approach which posits that utility cannot be measured numerically but can be ranked in order of preference. A consumer can say they prefer a banana to an apple, but they cannot say by how much. Utility is expressed in terms of ranks (1st, 2nd, 3rd, etc.).

Step 3: Final Answer:
Cardinal Utility Analysis is based on the idea that the level of utility can be expressed in numbers.