Cardinal Utility Approach:
According to this approach, the utility is measurable and can be expressed in quantitative terms. Cardinal utility approach is also known as classical approach because it was presented by classical economists.
Concepts of Utility:
Following are important concepts of utility:
The characteristics of a commodity or service is to satisfy a human want. The amount of satisfaction a person derives from some commodity or service, is called utility.
The amount of satisfaction a person derives from some commodity or service over a period of time, is called utility. In other words, it is the sum of marginal utilities obtained from consumption of each successive unit of a commodity or service. If continuous units of a commodity 'X' are consumed, then TUx = ∑ MUx
The extra amount of satisfaction to be obtained from having an additional increment of a commodity or service. In brief, the change in total utility resulting from one unit change in the consumption of a commodity or service per unit of time is called marginal utility. The following formula may be used to measure it.
Marginal utility = Change in total utility / Change in quantity consumed
MU = ∆TU / ∆Q
MU = d TU / d Q
The amount of satisfaction to be obtained from the consumption of very first unit of a commodity or service is called the initial utility e.g. the amount of satisfaction to be obtained from consumption of the first apple is units. It is called initial utility of the consumer.
When a consumer consumes successive units of a commodity or service, its marginal utility decreases. The utility obtained from the consumption of all the units of a commodity or service before reaching the marginal utility equal to zero, is called positive utility.
By the consumption of that unit of a commodity where the marginal utility drops down to zero, is called the saturation point.
By using the next unit of a commodity after saturation point, that unit gives negative satisfaction to the consumer and marginal utility becomes negative, it is known as negative utility.
Although utility cannot be measured but in cardinal approach of consumer behavior, the term which is used as a unit of utility is known as util and arithmetic numbers (1, 2, 3, .......) are used. For example X ate an apple and got 10 util of utility.