According to the theory of cardinal utility we can observe and quantify how satisfied a customer is with a product or service as well as the utility thereof. This is the basic principle on which the economic term of cardinal utility is founded. In this way, it could be said that cardinal utility serves to measure customer expectations regarding the utility of goods and services, beyond what is expected for their monetary value.
How is cardinal utility measured?
The tools are the unit of measure of the cardinal utility since they allow adding, ordering and comparing the data as if they were numbers. To understand how it measures the degree of utility of a good or service, this measure gives a certain value to the consumption of a basket, either of goods or services, according to the client's priorities and how much each product is consumed.
What are the pros and cons of cardinal utility?
Measuring cardinal utility is very beneficial in some cases, but in others it can also prove counterproductive or difficult. Among the benefits of calculating the cardinal utility we find:
- Know exactly the valuation of a good or service by a person
- Being able to organize products based on a greater or lesser utility for the customer
- Directly compare customer reviews
- Help to know the marginal utility that involves consuming an extra unit of the good or service
However, all this is theory, because in practice it is not possible to measure exactly how satisfied a consumer is with a good or service. This is because the value we give it will not be fair and neither can they be compared since satisfaction is personal and individual. Therefore, cardinal utility can only exist in a theoretical framework, but not in reality.