Basic Assumption of marginal utility analysis

Cardinal Measurement of utility

Marginal utility analysis assumes in the first place that utility can be measured by assigning definite numbers such as 1,2,3,4, e.t.c. That is it is assumed that utility is the quantifiable entity. This means that a person can express the satisfaction derived from his consumption of commodity is quantitative terms. He can say, for instance, that for him the first unit of the commodity has utility equal to 10, the second unit 8, and so on, In this way, it is possible for a consumer to compare the utilities of different goods. Utility is usually measured in imaginary units.

Utilities are independent

Marginal utility analysis assumes that the utilities are different commodities are independent of one another. That is the utility of one commodity does not in any way affect that of another. Thus according to this assumption, the utilities of various goods are additive or separate utilities of various goods can be added to obtain the total sum of the utilities of all goods consumed.

Constant marginal utility of money

Another important assumption of marginal utility analysis is that marginal utility of money remain constant can even though the quantity of money with the consumer is diminished by the successive purchase made by him. It is assumed that while marginal utility of a commodity varies with quantity of the commodity purchases their marginal utility of money remains throughout the same as the quantity of the goods purchase varies.

Introspection

The marginal utility analysis also assumes that from ones own experience (judging what happens in ones own mind), it is possible to draw inference about another person. This is self-observation applied to another person.