Which of the following is NOT an assumption of consumer equilibrium in "Cardinal utility analysis"?
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: marginal utility of money is variable
In Cardinal Utility Analysis, consumer equilibrium is based on several key assumptions:
- Rational Consumer → The consumer aims to maximize total utility.
- Cardinal Utility → Utility can be measured in numerical terms (like utils).
- Independent Utility → The utility derived from one good is independent of the consumption of another good.
However, the assumption that the marginal utility of money remains constant is fundamental to Cardinal Utility Analysis.
- If the marginal utility of money is variable, it would affect the measurement of utility and make the analysis inconsistent.
- Therefore, this is not an assumption of consumer equilibrium in Cardinal Utility Analysis.