3. Utility theory
• Utility – refers to the satisfaction or
pleasure that an individual or
consumer gets from the consumption
of a good or service that (s)he
purchases.
4. Utility theory
• Utility is also measured by how much
a consumer is willing to pay for a
good service.
6. MARGINAL UTILITY
• The additional satisfaction that an
individual derives from consuming an
extra unit of a good or service.
• ‘MARGINAL’ means ‘additional’ or
‘extra’.
7. MARGINAL UTILITY
• We use marginal analysis in the
examination of the effects of adding
an extra unit to, or taking away one
unit from, some economic variable.
8. MARGINAL UTILITY
• The marginal utility of a commodity
is the increase in total utility or
satisfaction derived from the
consumption or an additional or extra
unit of such commodity; it is the loss
of utility or satisfaction if one unit
less is consumed.
9. total UTILITY
• The total satisfaction that a customer
derives from the consumption of a
given quantity of a good or service in
a particular time period.
10. total UTILITY
• The total satisfaction that a customer
derives from the consumption of a
given quantity of a good or service in
a particular time period.