ABSTRACT
The usefulness of cardinal theory suggests that utility is measured just as much as the price and amount. In this theory, both utility and ultimate utility can be measured. Cardinal utility analysis is the oldest theory of demand which provides an explanation of consumer’s demand for a product and derives the law of demand which establishes an inverse relationship between price and quantity demanded of a product. Cardinal utility analysis of demand is based upon certain important assumptions. Economists like J. R. Hicks think that the assumption of cardinal measurability of utility is unrealistic and therefore it should be given up. Utility analysis also assumes that utilities derived from various goods are independent. An important assumption of cardinal utility analysis is that when a consumer spends the varying amount on a good or various goods, or when the price of a good changes, the marginal utility of money remains unchanged.
