Cardinal utility analysis of consumer’s behaviour is based on which combination of the following assumptions: I. Utility is measurable is terms of cardinal numbers II. Constancy of the marginal utility of money III. Utilities of different goods are interdependent IV. Gossen’s first law of consumption Choose the correct answer

The correct answer is A. Only I and II.

Cardinal utility analysis is a theory of consumer behavior that assumes that utility can be measured in cardinal numbers. This means that it is possible to say that one good gives a consumer more utility than another good. The theory also assumes that the marginal utility of money is constant. This means that the consumer gets the same amount of satisfaction from each additional dollar of income.

Option I is correct because cardinal utility analysis assumes that utility can be measured in cardinal numbers. Option II is also correct because cardinal utility analysis assumes that the marginal utility of money is constant. Option III is incorrect because cardinal utility analysis does not assume that the utilities of different goods are interdependent. Option IV is incorrect because cardinal utility analysis does not assume Gossen’s first law of consumption.

Gossen’s first law of consumption states that as a consumer consumes more of a good, the marginal utility of that good decreases. This means that the consumer gets less satisfaction from each additional unit of the good that they consume. Cardinal utility analysis does not assume this law because it does not assume that utility can be measured in cardinal numbers.