Basic Assumptions of Marginal Utility A
Basic Assumptions of Marginal Utility Analysis.
Marginal utility analysis is based on a few basic assumptions. The following are the main assumptions:—
(i) Cardinal Measurement of Utility: It assumes that utility can be measured and the exact measurement can be given by assigning definite numbers such as 1, 2, 3, etc. It means that utility is a quantifiable entity. For example, a person can express the satisfaction derived from the consumption of a commodity in quantitative terms. He can say, for instance, that for him the first unit of the commodity has utility equal to 10, the second unit 8, and so on. Utility is usually measured in imaginary units.
(ii) Utilities are Independent: Marginal utility analysis assumes that the utilities of different commodities are independent of one another. That is, the utility of one commodity does not in any way affect that of another. In other words, the satisfaction desired from the consumption of one good is the function of that good alone and is not affected by the consumption of another. Thus, according to this assumption, the utilities of various goods are additive.
(iii) Constant Marginal Utility of Money: It assumes that the marginal utility of money remains constant even though the quantity of money with the consumer is diminished by the successive purchases made by him. It is assumed that while marginal utility of a commodity varies with the quantity of the commodity purchased, the marginal utility of money remains throughout the same as the quantity of the good purchased varies. This assumption becomes necessary because the marginal utility of a commodity is measured in terms of money.
(iv) Introspection: The marginal utility analysis also assumes that from one’s own experience it is possible to draw inference about another person. This is self-observation applied to another person. It assumes that mind of human work identically in similar situations. This is how the system of taxation is built on the assumption that
Marginal utility analysis is based on a few basic assumptions. The following are the main assumptions:—
(i) Cardinal Measurement of Utility: It assumes that utility can be measured and the exact measurement can be given by assigning definite numbers such as 1, 2, 3, etc. It means that utility is a quantifiable entity. For example, a person can express the satisfaction derived from the consumption of a commodity in quantitative terms. He can say, for instance, that for him the first unit of the commodity has utility equal to 10, the second unit 8, and so on. Utility is usually measured in imaginary units.
(ii) Utilities are Independent: Marginal utility analysis assumes that the utilities of different commodities are independent of one another. That is, the utility of one commodity does not in any way affect that of another. In other words, the satisfaction desired from the consumption of one good is the function of that good alone and is not affected by the consumption of another. Thus, according to this assumption, the utilities of various goods are additive.
(iii) Constant Marginal Utility of Money: It assumes that the marginal utility of money remains constant even though the quantity of money with the consumer is diminished by the successive purchases made by him. It is assumed that while marginal utility of a commodity varies with the quantity of the commodity purchased, the marginal utility of money remains throughout the same as the quantity of the good purchased varies. This assumption becomes necessary because the marginal utility of a commodity is measured in terms of money.
(iv) Introspection: The marginal utility analysis also assumes that from one’s own experience it is possible to draw inference about another person. This is self-observation applied to another person. It assumes that mind of human work identically in similar situations. This is how the system of taxation is built on the assumption that