(a) Cardinal Utility analysis is not free from criticism. Do you agree

Question

(a) Cardinal Utility analysis is not free from criticism. Do you agree? Elaborate.

(b) Consider a consumer who consumes two goods X and Y, priced at PX and PY, respectively. Suppose price of good X falls to PX’. Decompose price effect of this fall in price into substitution and income effect using Hicksian approach.

20 Oct 2021

Answer :

Word Count : 301

(a) Cardinal Utility analysis, which measures utility in numerical terms, is indeed not free from criticism in the field of microeconomics. One major critique stems from the subjective nature of assigning numerical values to utility. Since utility is a psychological concept and cannot be quantified objectively, the cardinal approach lacks empirical validity. Additionally, interpersonal utility comparison, a key aspect of ________ _________ ________ _________ _________.
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