UNIVERSITY OF CAPE COAST,

DEPARTMENT OF ECONOMICS,
ELEMENTS OF ECONOMICS 1 (ECO 201).

ASSIGNMENT 1
1ST SEMESTER 2009/2010

Question:
Utility is always and everywhere a Cardinal
Measure, Discuss.

Charles Turkson
Index No.: SB/BMS/08/0005
LEVEL 200
August 2009
LECTURER: MR. NKANSAH

The statement that, “UTILITY IS ALWAYS AND EVERYWHERE A

CARDINAL MEASURE” is difficult to explain. Different groups of people
have said different things or shared different thoughts of UTILITY
over the years. To really know if Utility is always and everywhere a
cardinal measure it is important to first understand the keywords
used in the statement. The keywords are; Utility and Cardinal
Measure.

UTILITY

Utility, a want satisfying power of a good or service or the

satisfaction or pleasure a consumer obtains from the consumption of
a good or service, is subjective and difficult to measure. Utility is
simply an abstraction useful for explaining Consumer Behaviour. The
theory attempts to explain how an individual consumer could
maximize his satisfaction from his limited income given the market
prices of goods and services. In simple words the theory tries to
address how an individual consumer given the market prices of
goods and services can behave rationally by ensuring that he
purchases more of the commodity at lower price and purchases less
of the commodity at a higher price. Utility is used by Economists to
represent satisfaction people derive from these consumption
activities. Utility is a concept that was introduced by Daniel Bernoulli.
He believed that for the usual person, utility increased with wealth
but at a decreasing rate. Early Economist imagined that the utility
associated with different activities might someday be subjected to
precise measurement. The 19th century British Economist-Jeremy
Bentham (1748-1832) for example wrote of, A UTILOMETER, a device
to measure amount of utility provided by different consumption
activities. Up till today no such device has been manufactured. To
properly understand the concept of utility it is important to
understand the forms of utility. There are three forms of utility
namely; Marginal Utility, Average Utility and Total Utility.

Marginal Utility is the addition to the overall utility resulting from one
or a unit change in the quantity consumed. In simple terms it is the
additional satisfaction derived from consuming an additional unit of a
commodity. It should also be known that additional satisfaction from
the continuous consumption of a commodity would tend to fall with
each successive unit consumed. For example, after a hard day’s job
on a sunny day, a tired farmer will quickly drink the first glass of
water offered him. Successive glasses of water may be taken but not
with the enthusiasm associated with the first glass of water. This is
what is known as THE AXIOM OF DIMINISHING MARGINAL UTILITY.
Mathematically Marginal Utility is defined as the change in Total
Utility over the change in Quantity consumed. That is, [MUx =
ΔTUx/ ΔQx]
Average Utility is the utility per unit of the quantity of a commodity
consumed. It is therefore the ratio of total utility to that of the
quantity consumed. For this reason Average utility would fall but
would never be zero. It is mathematically represented as: [AUx =
TUx/ Qx]
Total Utility is the sum of marginal utilities. It is the overall
satisfaction from consuming a bundle of commodity. In other words it
is the entire amount of satisfaction that the consumer derives from
2 | C. TURKSON – ASSIGNMENT
August 2009
consuming more or successive units of a particular commodity- this is
in the case of one commodity. The axiom of diminishing marginal
utility does not affect total utility. This because additional units of a
commodity tend to increase its overall satisfaction. It mathematical
represented as: [TUx = ΣMUx]

CARDINAL MEASUREMENT

When something is said to be cardinally measurable it means that a

given interval between two measures has a consistent meaning. That
is, the measure corresponds to points along a straight line. For
example, height, output, and income are cardinally measurable. In
economics sense, when Utility is said to be cardinal it means that
utility is measurable and the units of measurement is UTILS. This
reasons with just one of the three Schools of Thought as to utility
determination of an individual. It is important to fairly understand the
Theories employed to analyse the consumer behaviour or utility
maximization.

APPROACHES TO UTILITY ANALYSIS

There are three theories as to how the behaviour of a consumer as to
the satisfaction derived from consuming a bundle of a commodity
can be analysed. All of these theories seek to explain why more of a
commodity is purchased at a lower price and less at a higher price.
The theories are; The Ordinalist Theory or the Indifference Curve
Theory, The Cardinalist Theory or The Marginal Utility Theory and the
Revealed Preference Theory. Cardinal utility is a quantitative
measure whiles ordinal utility is a qualitative measure

Ordinalists such as E. Slushy, Wilfred Pareto and John Hicks are of

the view that utility is measurable in an ordinal sense that is
consumers can only rank market baskets with regard to the
satisfaction they give them. That is one can say that He derives more
satisfaction in consuming FUFU to consuming KONKONTE. They hold
the view that utility derived from a commodity cannot be measured
in utils. They believe that utility is of a qualitative measure.
Ordinalists are never concerned with the specific units; they believe
that consumers can derive a given level of satisfaction from
consuming different combinations of goods and services. They
believe that once a consumer can achieve a given satisfaction
through different combination, then, he will be indifferent in his
choice of combination of goods. That is why the Ordinalists theory is
also referred to as the INDIFFERENCE CURVE THEORY.

The Cardinalist assumes that figures could be assigned to different

types and levels of utility. They believe that individual units called
UTILS could be used to measure Total, Marginal and Average Utilities.
That is one can tell that for a example a Tuber of Yam gives that
person say 20Utils as to 5Utils derived from drinking a glass of water.
They also believe that based on the amount of utils assigned to a
particular commodity the consumer can determine the amount to be
paid to maximise satisfaction. That is to say the amount of utils

3 | C. TURKSON – ASSIGNMENT
August 2009
derived could be measured in monetary sense. This theory is also
known as the Marginalist theory because they use the Marginal Utility
of a commodity to analyse the equilibrium of the consumer since
they view the concept to be measureable. Nineteenth Century
economists, such as William Stanley Jevons of England, Karl Manger
of Austria and Leon Walrus of France, believed that the difference
between two measurements is itself numerically significant.
Cardinalists assume that the consumer is rational that is to say that
the consumer tries to maximise satisfaction and minimise
dissatisfaction. They also believe that money has a constant marginal
utility that is even if the consumer’s income changes the utility or the
value of the product should remain the same. Other assumptions
such as the axiom of diminishing marginal utility and the cardinality
of utility are strongly upheld by the Cardinalist in utility analyses.

CRITICISM TO UTILITY MEASUREMENT

Over the years different point of views have been introduced into
every aspect of Economics. For example the Classical, Keynesian,
Neo classical and the Neo Keynesian approaches to macroeconomics.
In the same way differences in points of view as to the measurement
of utility has brought accusations and counter accusations to the
various Schools of Thought. Some of these criticisms are discussed
below;

Firstly, Utilities of two different people cannot be compared. This is

because utility is affected by psychological attitudes such as peer
group pressures, personal experiences and general cultural
environment of a community. Commodities with joint demand are
also influenced by the other.

Secondly, Utility cannot be quantified in utils as claimed by the

Cardinal Utility theory. That is the assumption that utility is
measurable is naive since utility itself is subjective hence difficult to
measure. Utility is different from one person to the other and also
different at different points in time. One unit of the same commodity
may yield different amounts of Utils to different individuals. It
therefore makes the concept of utils just an abstraction which is by
no means practical.

Thirdly, in actual sense no person has a utilometer to be used to

estimate the marginal utilities of the commodities consumed. One
would therefore not be able to equate marginal utility per Cedi or
Dollar or Pound of all commodities simultaneously.

Fourthly, the assumption by Cardinalists that money has a constant

marginal utility is very unrealistic. This is because as income levels
change in the real sense the marginal utility of money changes. It is
therefore wrong to use money as a yardstick for measuring the
consumer’s maximum satisfaction since the utility of money itself
changes with a change in income.

Fifthly, the axiom of diminishing marginal utility does not apply to

every commodity. Assuming that even the utility of a commodity can
4 | C. TURKSON – ASSIGNMENT
August 2009
be measured the satisfaction from some commodities such as money
and other stimulus commodities like alcoholic beverages do not
usually diminish with successive units as purported by the
Cardinalist.

IS UTILITY THEREFORE ALWAYS AND EVERYWHERE A

CARDINAL MEASURE?

To be able to answer this question the different methods of analysing

or “measuring” utility or the satisfaction of consumers have been
explained. This is to show that there is not one but many ways of
analysing the satisfaction derived by consumers from consuming of
goods and services. The Individuals who proposed the theories
believe that their views about utility are the best. However, different
groups of economists have associated themselves to particular
theories. For example Neo-classical economists, believe that
rationality is precisely defined in terms of imputed utility-maximizing
behaviour under economic constraints. As an imaginary behavioural
measure, utility does not require attribution of mental states
suggested by "happiness" or "satisfaction". Neoclassical economics
has largely retreated from using cardinal utility functions as the basic
substance of economic analysis, in favour of considering agent
preferences over choice sets.
In older definitions of utility, it makes sense to rank utilities, but not
to add them together. A man can say that a bowl of FUFU is
preferable to a plate of RICE, but not that it is twenty times
preferable to the RICE. The reason is that the utility of twenty plates
of Rice is not twenty times the utility of one bowl of FUFU. So it is
hard to compare the utility of the bowl of FUFU with 'twenty times the
utility of the Rice'.
It is important to note that neither cardinal nor ordinary utility are
empirically observable in the real world. In case of cardinal utility it is
impossible to measure the level of satisfaction "quantitatively" when
someone consumes or purchase an item. In case of ordinal utility, it
is impossible to determine what choices were made when someone
purchase an item. Any act would involve preference over infinite
possibility of set choices.

This makes it very difficult to say in affirmation that utility is always

and everywhere a cardinal measure. Objectively speaking, utility,
according to the Marginalist, can be subjected to cardinal
measurement. This makes utility a cardinally measurable variable.
However in real life situations a cardinal analysis of utility is close to
impossible. Also, there are other schools of thought, all seemingly
convincing, to utility analyses so it would be inappropriate to
underestimate the other schools of thought. The concept of cardinal
utility itself is up till now just an abstract theory; there is little or no
evidence to suggest that such measurement is possible and that it is
even needed for modern consumer demand theory and indifference
curve analysis. Cardinal utility, however, is often employed as a

5 | C. TURKSON – ASSIGNMENT
August 2009
convenient teaching device for discussing such concepts as marginal
utility and utility maximization. It should be noted that in actual fact
not everybody acts rationally every time and that the Cardinalist
measure of utility would be very difficult “ALWAYS AND
EVERYWHERE”. This does not mean that the Cardinalist theory
should be ignored, it is very useful in explaining human satisfaction
and perhaps a UTILOMETER may be produced in the nearer future.
UTILITY IS THEREFORE NOT ALWAYS AND EVERYWHERE A CARDINAL
MEASURE.

REFERENCES:

1. Robert H. Frank And Ben S. Bernanke, PRINCIPES OF

ECONOMICS, 2nd Edition(2004)
2. Edwin Mansfield, MICROECONOMICS, 19th Edition(1996)
3. Walter Nicholson, MICROECONOMIC THEORY- BASIC
PRINCIPLES AND EXTENSIONS, 18th Edition(2002)
4. Isaac Oscar Odoom, ECONOMICS FOR SSS STUDENTS, 2nd
Series(2001)
5. Department of Economics, University of Cape Coast,
ELEMENTS OF ECONOMIC 1 MICROECONOMICS, LECTURE
NOTES ECO 201, (2008)
6. "http://www.answers.com/topic/moral" class="ilnk" (2009)
7. Ralph Byrne, www. Unc.edu/dept/econ/byrns_web.
8. www.amosweb.com/cgi-bin/utility max.

6 | C. TURKSON – ASSIGNMENT
August 2009