Utility in Economics

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Utility in Economics

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 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 :-

According to economists, utility 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 or price, 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.

 

 

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