Economics

Utility

a. Meaning:
‘Utility’ means ‘usefulness’.In Economics, utility is the want-satisfying power of a commodity or a service. It is in the goods and
services for an individual consumer
at a particular time and at a particular
place.

b. Characteristics of Utility:

1. Utility is psychological. It depends on the consumer’s mental attitude.For example, a vegetarian derives no utility from mutton;
2. Utility is not equivalent to usefulness. For example, a smoker derives utility from cigarette; but,his health gets affected;
3. Utility is not the same as pleasure. A sick person derives utility from taking a medicine, but definitely, it is not providing pleasure;
4. Utility is personal and relative.An individual obtains varied utility from one and the same good in different situations and places;
5. Utility is the function of the intensity of human want. An individual consumer faces a
tendency of diminishing utility;
6. Utility is a subjective concept it cannot be measured objectively and it cannot be measured numerically;
7. Utility has no ethical or moral significance. For example, a cook derives utility from a knife using which he cuts some vegetables; and,a killer wants to stab his enemy by that knife. In Economics, a commodity has utility, if it satisfies a human want;

c. Types of Utility:
The following are the types of utility

1. Form Utility: An individual consumer obtains utility from a good or service only when it is available in a particular form. Raw
materials in their original form may not possess utility for a consumer.But in their changed forms as they become finished products, they provide utility to him. For example,cotton as a raw material may not
possess utility for a consumer; but as it gets a new form as a cloth, it yields the consumer utility.
2. Time Utility: A sick man derives time utility from blood not at the time of its donation, but only at the operation-time, i.e., when it is used.
3. Place Utility: A student derives place utility from a book not at the place of its publication (production centre) but only at the place of his education (consumption centre).
4. Service Utility: An individual consumer derives service utility from a service made available at the time when he most needs it. For example,clients obtain service utility from
their lawyers, patients derive service utility from the doctors and so on.
5. Possession Utility: When a student buys a book or dictionary from a book seller, then only it gives utility. 6. Knowledge Utility: It is the utility derived by having knowledge of a particular thing. Advertisement serves as a source of information on an object.

d. Measurability of Utility:
Wants of a person are satisfied by the act
of consumption. The consumer derives utility, measured in terms of ‘Utils’.An ‘Util’ is a unit of measurement of utility. An individual pays a price for the unit of the good, equal to the utility derived. Marshall states that utility
can be measured indirectly using the
‘measuring rod of money’.

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