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Utility: Features, Creation and Concepts on Utility

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According to Prof. Hibden: “Utility is the ability of a good to satisfy a want.” According to Nicholson: “Utility may be the quality which makes a thing desirable.”

Thus, in economics, utility is the capacity of a commodity or service to satisfy human wants. Hence in simple sense, it is the want satisfying capacity of a commodity or service.

Features of Utility:

(i) Utility is Subjective:

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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.

(ii) Utility is Relative and Variable:

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.

(iii) Utility is Unmeasurable:

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Although Prof. Marshall claimed that utility can be cordinally measured in terms of money or price in his Marginal Utility Analysis Theory. 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.

(iv) Utility is Abstract:

It is abstract in a sense as it cannot be seen or touched or felt. For example, teaching of a teacher, advice of a lawyer can neither be seen nor touched. Hence, utility is abstract.

(v) Utility, Usefulness and Morality:

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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. For example, we know that smoking or wine are harmful. However, at the same time they are very useful for an individual who is either drunkard or smoker because these harmful goods have utility to such persons.

(vi) Utility and Pleasure:

It is not necessary that a commodity possessing utility also gives pleasure whenever it is consumed. An injection possesses utility to an individual. However, it gives him/her physical pain. Hence, utility and pleasure are unrelated.

Creation of Utility:

(i) Time Utility:

Utility of a commodity changes from time to time. For example’ an umbrella has immense utility in rainy season, but has no utility or relative less utility during winter time.

(ii) Form Utility:

Utility of a commodity changes with the change in shape, size and formation. For instance, a piece of timber wood has very less utility for an individual, but its utility increases when is transformed into nice looking furniture.

(iii) 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. For example, utility of coal increases when it is transported from coal mines to open market. Traders and merchants create place utility.

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(iv) Possession Utility:

When the change in possession of a commodity increases utility, then it is known as possession utility. The utility of a match box is not so high for producers as it is for the households and smokers,

(v) Advertisement Utility:

Utility of a commodity also increases through continuous advertisement of that commodity. For example, utility of a particular health drink will increase i.e., consumers will increase the consumption of that commodity when advertisement increases. Consumers will get more knowledge of the product and hence utility boosts up.

More Concepts on Utility:

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(a) Total Utility (TU):

It refers to the total psychological satisfaction a consumer derives by consuming a particular commodity of several units. In mathematical terms, total utility is the direct function of the number of units of a commodity. It can be written as,

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(b) Marginal Utility (MU):

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It means change in total utility due to one additional or one extra unit of commodity consumed. It can be explained with the help of following example, by consuming one slice of bread a consumer gets 10 units of utility and by consuming second slice of bread utility increases to 18 units. Hence the marginal utility of second slice of bread is 18-10 = 8 units.

Thus, marginal utility can be expressed as:

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Marginal Utility of three types:

(i) When TU increases with the increase in one unit of extra consumption, then MU > 0

(ii)When TU remains same with the increase in one unit of extra consumption, then MU = 0

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(iii) When TU decreases with the increase in one unit of extra consumption, then MU < 0.

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