Wednesday, May 2, 2012

How is the cardinal utility theory relevant to consumers' behaviours?

The idea of cardinal utility is useful in explaining
things like why consumers make the choices they do.  This is so even though the theory
is a pretty shaky one -- there is no way to actually measure cardinal utility.  We have
no way of technically determining how much utility a person derives from a particular
choice.


However, the idea of cardinal utility is useful to
economists because it allows them to talk about why consumers buy, for example, more of
one particular kind of good than another.  It allows economists to have an explanation
for consumer behavior by saying that these choices have more utility for the
consumer.

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