Page 62 - DECO101_MICRO_ECONOMICS_ENGLISH

Dilfraz Singh, Lovely Professional University
Unit 5: Consumer Behaviour: Cardinal Approach

Unit 5: Consumer Behaviour: Cardinal Approach Notes

CONTENTS

Objectives
Introduction
5.1 Utility Analysis
5.2 Types of Utility
5.3 Laws of Utility

5.4 Consumer Equilibrium using Cardinal Approach
5.5 Summary
5.6 Keywords
5.7 Self Assessment

5.8 Review Questions
5.9 Further Readings

Objectives

After studying this unit, you will be able to:
Discuss the utility analysis

Describe types of utility
State the laws of utility
Explain consumer’s equilibrium using cardinal approach

Introduction

Human wants are unlimited and they are of different intensity. The means at the disposal of a
man are not only scarce but they have alternative uses. As a result of scarcity of recourses, the
consumer cannot satisfy all his wants. He has to choose as to which want is to be satisfi ed fi rst
and which afterward if the recourses permit. The consumer is confronted in making a choice.
For example, a man is thirsty. He goes to the market and satisfies his thirst by purchasing coca-

cola instead of tea. We are here to examine the economic forces which make him purchase a
particular commodity. The answer is simple. The consumer buys a commodity because it gives
him satisfaction. In technical term, a consumer purchases a commodity because it has utility for
him.
When utility is treated as something that can be measured and its quantity represented in
numbers, it is called cardinal utility.

5.1 Utility Analysis

Utility is an economic term referring to the total satisfaction received from consuming a good or
service.

Example: Satisfaction you get by consuming a cup of tea is the utility of that cup of tea.

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