Q:

What are the limitations of cardinal utility analysis?

A:

Quick Answer

The limitation of cardinal utility analysis is the difficulty in assigning numerical value to a concept of utility. Utility is comparable on a scale, but not easily quantifiable. In other words, the utility of a good or service cannot simply be measured in numbers in order to determine its economic value.

Continue Reading

Full Answer

Utility is the ability of a good or service to satisfy the needs and wants of a consumer. Cardinal utility analysis attempts to quantify utility using cardinal numbers. Cardinal utility assumes that a single utility is measurable in its own right. This contrasts with ordinal utility, which holds that utility is comparable on a scale.

Cardinal utility attempts to perform calculations and determine utility indices. There are limitation to this approach found in the feasibility of assigning numerical value to a single utility. A utility with a value of four is not necessarily twice as good as a utility with a value of two, the higher value simply means that it is better. Utility is also not additive; two utilities, both with values of three, do not combine to create a utility value of six.

Ordinal utility analysis overcomes the limitations of cardinal utility analysis. Ordinal analysis views utilities in groups and orders them on a scale. This method seeks to map consumer preferences as curves on a graph rather than performing quantitative calculations of utility.

Learn more about Economics

Related Questions

Explore