Case study: Suppose your father comes back home from work and you offer him a glass of juice. The first glass of juice will give him great satisfaction. The satisfaction from second glass of juice will be relatively less. With further consumption, a stage will come when he would not require any more glass of water. If he is forced to consume even one glass that would lead to disutility.
Which of the following is the limitation of "Cardinal analysis", which eventually gave rise to "Ordinal analysis"?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Utility can be measured in numbers
Cardinal Analysis Limitation (Option 1): The fundamental criticism of Cardinal Analysis is its assumption that satisfaction is a measurable quantity, like height or weight. Economists argued that because utility is a subjective, psychological feeling, it is impossible to assign it a precise numeric value like "20 utils". This "unrealistic" requirement for exact measurement is precisely what led to the development of Ordinal Analysis.
Option 2: This option is incorrect because it describes utility as an "objective psychological phenomenon." In reality, utility is a subjective phenomenon. While Cardinal Analysis failed to address this subjectivity properly, the wording "objective" makes this option technically false.
Option 3: This is a core feature or strength of Ordinal Analysis, not a limitation of Cardinal Analysis. Ordinal theory was created because it correctly recognizes that consumers only need to rank their preferences (1st, 2nd, 3rd) rather than measure them.