Utility : –
Utility in Economics , refers to the power of a particular commodity to satisfy human wants. Such power of satisfaction of human wants could be either be actual satisfaction or expected satisfaction , which could be derived from the consumption of a commodity. Utility in Economics , of a commodity differs from person to person (clothing may have different utility for rich and poor), place to place (Winter in UK may require different clothes than summers in India at the same time) and time to time (when hungry, food has higher utility).
Measurement of Utility in Economics :-
According to economists, utilityUtility in Economics can be measured in cardinal or quantitative terms, which makes it possible to estimate utility, derived by a person from consumption of goods and services in numerical terms. ‘Util’ , is an imaginary and psychological units measure used to measure utility (just like KG is used for Weight) . Under the Cardinal Utility Approach, ‘Utility’ concept aims to attain the consumer’s equilibrium.
Measurement of satisfaction in “utils”
Mohan, ate two items, an apple and a chocolate. Let us assume that eating an apple gives 50 utils of utility. utils be assigned to the chocolate? In case Mohan likes the chocolates less than the Apple, the chocolates could have utils which would be less than 50. For example if we assign utils of 25, to chocolates, we can say that Mohan likes chocolates, half as much as apple. However, if Mohan Likes chocolates more than the Apple, the chocolates could have utils which would be more than 50. For example if we assign utils of 100, to chocolates, we can say that Mohan likes chocolates, twice as much as apple.
Measurement of satisfaction in terms of money
Since, utils may vary from individual to individual, they cannot be taken as a standard unit for measurement of utility. In view of this, Many economists suggested the measurement of utility in terms of money , which the consumer is willing to pay for a commodity. For example if 1 util is assumed to be equal to Rs. 5, an apple will yield utils worth Rs. 250 (as 1 util = Rs.5) and if chocolate gives utils of 25 or 100, it would be worth Rs. 125 /Rs. 500 in terms of money.