Learn about utility economics, a fundamental concept in economics that focuses on measuring satisfaction and happiness from consuming goods and services. Find out how utility impacts decision-making and consumer behavior.
What Is Utility Economics.
“Every thing which increases pleasure and reduces pain has its utility.”The concept of utility thus refers to the pleasure or satisfaction associated with having using or consuming goods and services.
Utility of goods varies from time to time and place to place.
We can divide the utility in two forms:
- Ordinal Utility:
Ordinal Utility measurement uses relative degree of satisfaction.
- Cardinal Utility:
Cardinal utility indicates absolute degree of satisfaction Thecardinalist school postulated that utility can be measured.
Types of Utility:
- Total Utility:
We can define the total utility as the entire amount of satisfaction obtained from the consumption of a given amount of the commodity per period of time.
u = ul(xl) + u2(x2) + — + un(xI1)
- Marginal Utility:
Marginal utility maybe defined as the change in the total utility resulting from a one – unit change in the consumption of a commodity per period of timeIn the case of an increase in consumption marginal utility refers to the extra satisfaction obtained from the extra unit of “Consumption per period of time.
In the case of decline in consumption, marginal utility refers to the amount of the decline in total utility associated functions. Concerns the shape of the total utility function viewed geometrically the derivative of TU function gives us the slope of the total utility function at any x value.
- When Tu is at its highest point the slope of Tu curve is zero (because tangent line is horizontal) and correspond value of Mu is also zero.
- Tu slope gets flatter as a result Mu diminishes since equal to the slope of Tu function.
Next time you make a purchasing decision, think about the utility you will derive from your choices and how it impacts your overall happiness.