This document discusses the cardinal approach to consumer behavior. It states that the cardinal approach measures consumer satisfaction/utility in quantifiable units. The key assumptions of the cardinal approach are that consumers are rational and seek to maximize utility given their budget. Utility is measured on a cardinal scale and the marginal utility of money is assumed to be constant. Marginal utility diminishes as consumption increases. The document provides the utility function, shows a table and graph of marginal and total utility, and lists unrealistic assumptions and the inability to separate income and substitution effects as criticisms of the cardinal approach.

2. M-Adeel-Razzaq
FA17-BBA-041

3. Cardinal
Approach
Topic

4. In this approach the consumer
satisfaction/utility are expressed
in the term of unit or we say that it
is measureable
What is Cardinal Approach

5.  Some assumption of the cardinal
approaches
 Rationality
 Measured Cardinal Utility
 Constant Marginal Utility of Money
 Diminishing Marginal Utility
 Total utility
Assumptions

6. The consumer is rational. He
seeks to maximize satisfaction
from the limited income which is
at his disposal
Rationality

7.  The utility can be measured in cardinal
numbers such as 1, 3, 10, 15, etc. The
utility is expressed in imaginary
cardinal numbers tells us a great deal
about the preference of the consumer
for a good
Measured Cardinal Utility

8. Another important premise of
cardinal utility of money spent on
the purchase of a good or service
should remain constant.
Constant Marginal Utility of
Money

9. It is also assumed that the
marginal utility obtained from the
consumption of a good diminishes
continuously as its consumption is
increased
Diminishing Marginal Utility

10. Equation of Cardinal

11.  Where utility is measured in monetary units.
If the consumer buys qx his expenditure is
qx and px Presumably the consumer seeks
to maximize the difference between his
utility and his expend ture
U-pxqx

12. Mathematical Derivation

13. Table and Graph of MU &Tu
-20
0
20
40
60
80
100
120
1 2 3 4 5 6
Mu&Tu
Quantity
Tc
Mu
Quantity MU TU
1 40 -
2 30 70
3 20 90
4 10 100
5 0 100
6 -10 90

14. The basic 3 weakness
in Cardinal
approaches
Criticism
of cardinal Approach

15.  Unrealistic Assumptions
 MU of Money Can Never be Constant
 No Formal Distinction between
Income and Substitution Effect
Criticism
of cardinal Approach