Utility concepts

3. Meaning Of Utility
• Utility is the ability of a good to satisfy a want.
• According to Nicholson: “Utility may be the quality which
makes a thing desirable.”

4. Features
•Utility is Subjective
• The utility of a commodity is always subjective
because it depends upon the consumer as much
as on commodity. It is the psychological
satisfaction as feeling of the consumer. Hence, it
is internal not external.

5. Utility is Relative andVariable:
• Utility is highly relative and variable. It varies from person
to person and from time to time or place to place for the
same individual. Again, a same commodity can give
different utility to different people. Because, utility a
person derives from either good or service depends not
only on his psychological attitude but also on his intensity
of desire.

7. Utility is Unmeasurable:
• Although Prof. Marshall claimed that utility can
be cardinally measured in terms of money or
price in his Marginal Utility AnalysisTheory. -
•Utils
• However, according to Hicks, Allen and Slutsky,
utility cannot be measured in terms of number. It
can only be ranked or ordered in terms of
preference pattern.

8. Utility is Abstract:
•It is abstract in a sense as it cannot be seen
or touched or felt..

9. Utility, Usefulness and Morality:
• Utility is totally different from usefulness and morality. It
means a good possesses utility even when it may not be
useful or does not possess any moral and ethical
importance

10. • An important characteristic of business is the
creation of utilities is goods so that consumers
may use them. ...
Creationof Utility

11. Form Utility
• Utility of a commodity changes with the
change in shape, size and formation

12. Time Utility:
• Utility of a commodity
changes from time to time

13. Place Utility:
• It is added to a commodity by
transporting it from the place where
it is plenty to the place where it is
scarce.

14. Advertisement Utility
• Utility of a commodity also increases through continuous
advertisement of that commodity

15. Concepts of Utility

16. Total Utility (TU):
• It refers to the total psychological satisfaction a consumer
derives by consuming a particular commodity of several
units
50 40 30
TU = 120
Total Utility (T.U.) = U1 + U2 + … + Un

17. Marginal Utility (MU):
Marginal Utility (M.U.) = Change inT.U. / Change inTotal
Quantity = ΔTU/ Δ Q (TUn –TUn-1)
• It means change in total utility due to one additional or
one extra unit of commodity consumed
60 120
100
MU = 40 MU= 20

18. Average Utility
• One can obtain it by dividing the total unit of
consumption by the number of total units. Suppose there
are total n units, then
• Average Utility (A.U.) =T.U. / Number of units =T.U. / n

19. 50 40 30
TU = 120
AU= 120/3= 40

20. Measurement of
Utility

21. Cardinal Utility
• Cardinal Utility is the idea that economic welfare can be
directly observable and be given a value.
5000 utils
8000
utils

22. ordinal utility
•In ordinal utility, the consumer only
ranks choices in terms of preference
but we do not give exact numerical
figures for utility.
•For example, we prefer a BMW car to
a Nissan car, but we don’t say by how
much.