How does marginal utility theory explain the concept of cardinal utility?

Marginal utility theory explains the concept of cardinal utility by suggesting that individuals can assign numerical values, or cardinal numbers, to the satisfaction or utility they derive from consuming goods or services. According to this theory, individuals make decisions based on the marginal utility they expect to gain from consuming an additional unit of a good or service.

Cardinal utility is a measure of the total satisfaction or happiness an individual derives from consuming a particular good or service. It assumes that individuals can quantify their preferences and assign specific numerical values to the utility they derive from different goods or services. This allows for a comparison of the utility derived from different goods and helps individuals make rational choices based on maximizing their overall utility.

Marginal utility, on the other hand, refers to the additional utility gained from consuming one more unit of a good or service. It is the change in total utility resulting from consuming an additional unit. Marginal utility theory suggests that individuals make decisions based on the marginal utility they expect to gain from consuming an additional unit of a good or service.

The concept of cardinal utility is explained by marginal utility theory through the assumption that individuals can assign numerical values to the utility they derive from consuming goods or services. By comparing the marginal utility of different goods, individuals can make decisions that maximize their overall utility. For example, if a person assigns a higher numerical value to the utility derived from consuming a chocolate bar compared to a bag of chips, they would choose to consume the chocolate bar if its marginal utility is higher.

However, it is important to note that the concept of cardinal utility has been subject to criticism and is not universally accepted in economics. Some economists argue that utility is subjective and cannot be measured in cardinal numbers. Instead, they propose the concept of ordinal utility, which focuses on the ranking or ordering of preferences rather than assigning numerical values to utility.