Marginal utility

Basic assumptions of marginal utility analysis or cardinal utility analysis !!!!!!

Cardinal utility analysis of demand is based upon certain important assumptions. This are-

i) Cardinal measurement of utility: According to Marshall, utility is a measurable and quantifiable entity and the exact measurement can be expressed by assigning definite numbers such as 1, 2, 3 etc. This means that a person can express the satisfaction derived from the consumption of a commodity in quantitative cardinal terms. If utility is cardinally measurable, it becomes easy to compare two goods in respect of size or level of utility.

ii) Utilities are independent: Marginal utility analysis assumes that utilities of different commodities are independent of one another. That is, the utility of one commodity does not in anyway affect that of another. In other words, the satisfaction derived from the consumption of one good is the function of that good only. Thus, according to this assumption, the utilities of various goods are additive. That is, separate utilities of different goods can be added to get total sum of the utilities of all goods consumed.

iii) Constant marginal utility of money: According to this assumption, the marginal utility of money remains constant even though the quantity of money with the consumer is diminished by the successive purchases effort marginal utility of money, which is the measuring rod to measure marginal utility remains through out the same. In the words of Prof. Tapas Majumdar, “If money is supposed to provide the measuring rod of utility, then evidently as with all measuring rods, its unit must be invariant.”

iv) Introspection: The marginal utility analysis also assumes that from one’s own experience, it is possible to draw inference about another person. This is self-observation applies to another person. It is assumed that the mind of men work identically in similar situations. According to Emil Kander, “Introspection is the ability of the observer to reconstruct events which go on in the mind of another person with the help of self-observation.”