Which of the following assumption is not necessary for the cardinal utility theory?a)Perfectly competitive marketb)Constant marginal utility of moneyc)Rationality of the consumerd)Cardinal measurability of utilityCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Pure or perfect competition is a theoretical market structure in which the following criteria are met: all firms sell an identical product (the product is a "commodity" or "homogeneous"); all firms are price takers (they cannot influence the market price of their product); market share has no influence on price; buyers have complete or "perfect" information – in the past, present and future – about the product being sold and the prices charged by each firm; resources such as labor are perfectly mobile; and firms can enter or exit the market without cost.

Answer

Approch is for an individual consumer, market has nothing to do with it.

Answer

Assumption not necessary for the cardinal utility theory

The cardinal utility theory is a theory in economics that assumes that utility can be measured and quantified in numerical terms. It is based on the idea that individuals can assign specific numbers or values to the satisfaction or utility they derive from consuming goods or services. However, one of the assumptions listed in the options is not necessary for the cardinal utility theory. Let's discuss each option and identify the correct answer.

a) Perfectly competitive market
- In a perfectly competitive market, there are many buyers and sellers, homogeneous products, and perfect information. While this assumption is often made in economic models, it is not necessary for the cardinal utility theory. The cardinal utility theory focuses on the individual's preferences and the utility they derive from consuming goods, regardless of the market structure.

b) Constant marginal utility of money
- The assumption of constant marginal utility of money implies that the additional utility derived from consuming an additional unit of money remains constant. This assumption is necessary for the cardinal utility theory because it helps in comparing utility across different goods and services.

c) Rationality of the consumer
- The assumption of consumer rationality implies that individuals make choices that maximize their utility or satisfaction. This assumption is also necessary for the cardinal utility theory because it forms the basis for understanding consumer behavior and decision-making.

d) Cardinal measurability of utility
- The cardinal utility theory assumes that utility can be measured and quantified in numerical terms. This assumption is fundamental to the theory itself, as it allows for the comparison and ranking of different goods and services based on their utility.

Based on the above analysis, we can conclude that option 'A' (Perfectly competitive market) is not necessary for the cardinal utility theory. While it is a common assumption in economic models, it is not directly related to the measurement and quantification of utility, which is the main focus of the cardinal utility theory.

Answer

A

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