MEANING OF UTILITY IN ECONOMICS
In economics, the utility can be defined as a measure of consumer
satisfaction received on the consumption of a good or service.
The level of satisfaction derived by a consumer after consuming a good or
service is called utility.
The concept of utility is used in neo-classical Economics to explain the
operation of the law of demand.
A consumer is willing to buy a particular good to satisfy his/her various needs and
wants. Thus, it can be said that the demand for a good is closely related to the level
of satisfaction that the consumer derives from that good.
For instance, if the level of consumer satisfaction after the consumption of a good is
high, the demand for that good rises and vice versa.
Meaning of Utility
The utility wants the satisfying power of a good or service. It is also defined as the
property of a good or service to satisfy the want of the consumer. The utility is
subjective.
It depends upon the mental assessment of the consumer and is determined by
several factors which influence the consumer’s judgment.
Formula for Utility
Mathematically, the utility can be expressed as a function of the quantities of
different commodities consumed by an individual.
If an individual consumes quantity m1 of a commodity M, quantity n1 of a
commodity N and quantity r1 of a commodity R, the utility U of the consumer can be
measured as follows:
U = f (m1, n1, r1)
Utility Analysis
Utility analysis is a systematic process of measuring utility derived by a consumer
after the consumption of a good. It involves analyzing factors that influence
consumer behavior for a particular good.
There are two approaches to the measurement of utility, namely the cardinal utility
approach and the ordinal utility approach.
Characteristics of Utility
• The utility is that invisible quality of anything which resorts to satisfying any
human want. The utility may neither be seen, i.e. it is invisible, nor may it be
touched. It is there in the things in abstract or invisible form.
• The utility is not concerned with ‘morality’. Whether the consumption of a
thing is useful or harmful, if it serves to fulfill the wants of anyone, it possesses
‘utility’.
• Utility emerges out of human needs or wants. Thus it is Individual and relative.
In economics, the utility can be defined as a measure of consumer
satisfaction received on the consumption of a good or service.
The level of satisfaction derived by a consumer after consuming a good or
service is called utility.
The concept of utility is used in neo-classical Economics to explain the
operation of the law of demand.
A consumer is willing to buy a particular good to satisfy his/her various needs and
wants. Thus, it can be said that the demand for a good is closely related to the level
of satisfaction that the consumer derives from that good.
For instance, if the level of consumer satisfaction after the consumption of a good is
high, the demand for that good rises and vice versa.
Meaning of Utility
The utility wants the satisfying power of a good or service. It is also defined as the
property of a good or service to satisfy the want of the consumer. The utility is
subjective.
It depends upon the mental assessment of the consumer and is determined by
several factors which influence the consumer’s judgment.
Formula for Utility
Mathematically, the utility can be expressed as a function of the quantities of
different commodities consumed by an individual.
If an individual consumes quantity m1 of a commodity M, quantity n1 of a
commodity N and quantity r1 of a commodity R, the utility U of the consumer can be
measured as follows:
U = f (m1, n1, r1)
Utility Analysis
Utility analysis is a systematic process of measuring utility derived by a consumer
after the consumption of a good. It involves analyzing factors that influence
consumer behavior for a particular good.
There are two approaches to the measurement of utility, namely the cardinal utility
approach and the ordinal utility approach.
Characteristics of Utility
• The utility is that invisible quality of anything which resorts to satisfying any
human want. The utility may neither be seen, i.e. it is invisible, nor may it be
touched. It is there in the things in abstract or invisible form.
• The utility is not concerned with ‘morality’. Whether the consumption of a
thing is useful or harmful, if it serves to fulfill the wants of anyone, it possesses
‘utility’.
• Utility emerges out of human needs or wants. Thus it is Individual and relative.
