Utility refers to the want-satisfying power of a good or service. It indicates how capable a product is in fulfilling human needs. In economics, utility does not always mean usefulness or pleasure, it simply expresses satisfaction.
For instance, a person may derive utility from cigarettes, but that doesn’t mean it’s beneficial to health. Thus, utility is based on personal preference and perception rather than moral or practical value.
Key Characteristics of Utility
- Utility is not necessarily useful: Goods that may be harmful can still provide utility to some individuals.
- Utility does not always mean pleasure: Even if a good satisfies a want, it may not bring pleasure.
- Utility is subjective: Different people experience different levels of satisfaction from the same good.
- Utility is relative: It varies with time, place, and circumstances.
- Utility diminishes: According to the Law of Diminishing Marginal Utility, the satisfaction derived from consuming each additional unit of a good decreases over time.
Difference Between Cardinal and Ordinal Approach of Utility
Economists have explained utility through two main approaches — Cardinal and Ordinal Utility.
| Basis | Cardinal Utility | Ordinal Utility |
|---|---|---|
| Definition | Utility can be measured numerically in terms of satisfaction (Utils). | Utility cannot be measured numerically; it can only be ranked. |
| Measurement | Objective measurement of satisfaction. | Subjective ranking of preferences. |
| Realism | Less realistic since exact measurement is not possible. | More realistic as it focuses on qualitative ranking. |
| Concept Basis | Based on Marginal Utility Analysis. | Based on Indifference Curve Analysis. |
| Unit of Utility | Measured in Utils (units of satisfaction). | Ranked in order of preference. |
| Economist | Proposed by Prof. Alfred Marshall. | Developed by Prof. J. R. Hicks. |
| Example | Sam gains 60 utils from pizza and 40 utils from a burger. | Sam prefers pizza over a burger but does not assign numbers. |
The Law of Diminishing Marginal Utility
This law states that as a person consumes more units of the same good, the additional satisfaction (marginal utility) gained from each new unit tends to decrease. For example, the first slice of pizza brings high satisfaction, but the fifth slice may bring little or no pleasure.
This concept helps explain consumer behavior, demand patterns, and pricing decisions in economics.
Conclusion
Utility forms the foundation of consumer behavior and demand analysis in economics. It explains why people make certain choices and how satisfaction influences their decisions. By understanding cardinal and ordinal approaches, students can analyze consumption patterns and appreciate how preferences shape market dynamics.
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Updated on 26 October 2025
