Cardinal Approach Case Study

3.1.4. Cardinal Approach

Consumers will reach the position of equilibrium when they get the highest possible satisfaction in the process of consumption.

There are two types of approaches which explain how a consumer reaches the position of equilibrium in the process of consumption:

i. Cardinal utility approach ii. Ordinal or indifference curve approach.

The basic intention or objective of purchasing a product or service is to get satisfaction from consuming these products or services. “The satisfaction which a consumer gets by having or consuming goods or services is called utility” by economists.

According to this approach, the utility is measurable and can be expressed in quantitative terms. Cardinal utility approach is also known

Consider a man after working the whole day, will come home thirsty and needs atleast 6 glasses of water. When he drinks the first glass of water his MU is high, but he is not totally satisfied. With the second glass of water, his TU will increase, but the marginal utility from the second glass will be less than the first glass. As he drinks the third and fourth glass, his TU goes on increasing and MU will go on decreasing. With the fifth glass of water, his thirst is quenched. So his TU would have reached the maximum extent and his MU would have become zero, which shows that he would be no more in need of water. Now, if he is forced to drink the sixth glass of water, his TU will decrease and MU becomes negative, which can be seen in the diagram below. The TU goes on increasing till it reaches a particular point and then it starts decreasing, whereas, MU keeps decreasing till it reaches the point perpendicular to TU, and further it becomes

Regular interval: The consumption should be at a regular interval of time. A thirsty man in the above example should be given water at regular intervals, but if provided with every glass after a long gap the marginal utility will not decrease, instead it increases.

ii. Identical units: The units of consumption should be identical. If a thirsty man is given plain water first, subsequent glasses should also be plain glasses of water. But if the second glass is chilled soft drink, the MU will not decrease but increase.

iii. Suitable size: The consumption should be of suitable size. For a thirsty man, suitable size is a glass of water. If he is given water in a spoon, naturally the MU will increase and not decrease.

iv. Rational man: The law is applied on a rational man. In case of addiction, the law will not apply; say an alcoholic. The more he drinks, the more he will want.

v. Normal commodities: This law will work only in case of normal goods. If goods like gold, gemstones, or diamonds are given, the marginal utility will never decrease.

Limitations and Exceptions of The Law are as Below:

i. Cardinal measurement of utility is not possible.

ii. Every commodity is not an independent