INTRODUCTION TO UTILITY

 Learning Contents:                                                            

·         Concept  of Utility

·         Examples of Utility

·         Characteristics of Utility

Introduction

A consumer is one who decides which goods and services are to be purchased and in what quantity and then to spend the income on goods and services for satisfying the wants.

All the consumers consume goods and services directly or indirectly to maximize their satisfaction with the given income. The aim of every rational consumer is to spend the income on different goods and services so as to get maximum satisfaction out of it.

A consumer is in equilibrium when he derives maximum satisfaction from the consumption of one or more goods with the given income and price and is in no position to change his consumption pattern.

Concept of Utility

A feeling of happiness or satisfaction is derived from the consumption of goods and services is called utility. Utility is the capacity of a good or service to satisfy human wants. Hence, we can say the “want-satisfying power of a good is called utility. Acc. To Prof. Hibden “Utility is the ability of a good to satisfy a want.”

When utility is a cardinal concept means it is measured in terms of cardinal numbers such as 1, 2, 3, 4, etc. These numbers are called utils or units of utility. Util is simply a numerical measure of knowing how happy someone is. For e.g. eating the first slice of pizza gives 20 utils of satisfaction (20 utils expresses cardinal utility).

What are some examples of utility?

Most goods and services offer benefits (utility) to the consumer in some ways. Here are some examples of goods or services that offer utility.

·         Eating Bread offers a utility that satisfies the hunger of a hungry person.

·         Enjoying ice cream on a warm day offers utility refreshes a consumer.

·         Drinking a glass of juice gives utility nutritional benefits to a consumer.

·         Attending a yoga or meditation session makes feel good to a person who wants to relax.

·         Daycare centers offer utility removing child-care worries to working parents.

·         Working out in the Gym for an overweight person is an example of utility weight loss.

·         A piece of art that someone uses to decorate their home satisfies a desire for a home that looks good.

 Characteristics of Utility

Utility is a subjective or psychological

Utility is subjective. It is a psychological concept means it differs from person to person because of difference in taste, preferences, likes, and dislikes of a person.  E.g. knowing the nutritional value of a product before buying have more utility to a health freak person than a health ignorant.

Utility is relative or variable ( same product may offer different satisfaction)

Utility is relative or variable also with respect to time and place. It differs from time to time and even place to place for the same individual.

For e.g. woolen clothes have more utility during winter than summer. Another example could be someone who enjoys playing mobile games will get more utility from a new game launches on mobile than someone who prefers board games.

Utility is Abstract

 It is abstract in a sense as it cannot be seen or touched or felt with hands. For example, teaching of a teacher, advice of a doctor can neither be seen nor touched. It can be just experienced. Hence, the utility is an abstract concept.

Utility depends on the intensity of want

When a want is unsatisfied or more intense, greater will be the urge to demand the product to satisfy that want. In other words, anything that becomes a necessity for that time period more will be its utility. For e.g. Books have more utility to students just before their exams.

Utility is not measurable

Utility is a psychological concept as it indicates the feelings of a consumer which cannot be expressed numerically. So it cannot be measured cardinally or numerically. We can only express the utility ordinally i.e. ranking in terms of preferences. E.g. the First scoop of ice cream will have a very high utility than the second scoop. But Marshall assumes that utility can be cardinally measured.

Utility differs from the usefulness

Utility does not necessarily mean usefulness. The utility is the ability of a good to satisfy a want. A good satisfying a particular want does not mean useful (beneficial) to a consumer at the same time. For example, alcohol provides utility to a drunkard but it is not useful as it is harmful.

Utility is not the same as pleasure

A good which has utility may not necessarily provide any pleasure to the consumer.   E.g., no one enjoys taking bitter medicine or an injection shows utility doesn’t always offer the feeling of happiness or pleasure.

Utility is multipurpose

Utility changes according to the use to which it is put. E.g., water can be used for drinking, cooking, washing, and bathing, and utility in each case is different.

Multiple Choice Questions:

1. Want satisfying power of a commodity is called

    a. Utility

    b. Demand

    c. Consumer equilibrium

    d. None of these

2. Which of these is a feature of the concept of utility in economics?

    a. It is easy to measure since it exists in the physical world

    b. It is an abstract concept that only exists in consumer’s heads

    c. It can be measured since it used for products that can be seen

    d. It cannot be used for intangible goods.

3. Which of the following best defines the term utility as it is used by economists?

a.     when a market allocates resources in a way that maximizes consumer and producer surplus

b.      the usefulness of a resource or factor of production to producers of a good

c.       when an input can be used efficiently by producers

d.      the happiness or benefit a consumer experiences from a good

4. The utility is generally related to

    a. Satisfaction

    b. Necessity

    c. Useless

    d. Useful

5. A consumer’s spending is restricted because of

    a. Utility maximization

    b. Budget constraint

    c. Demand curve

    d. Marginal utility

6. Utility, being subjective means it

    a. Differs from product to product

    b. Differs from time to time

    c. Differs from person to person

    d. All of the above.

7. when someone says they experienced 100 utils of enjoyment from going to amusement park, which of these concepts did they use?

    a. Ordinal utility

    b. Individual demand

    c. Cardinal utility

    d. useful utility.

Answers

1. a 2. b. 3. d. 4. a 5.b. 6.d. 7.c