In practice, every individual tries to satisfy his wants with available resources. It is true that human wants are unlimited, so all human wants cannot be satisfied at a time. However, a particular want can be satisfied fully at a specific time. Here, the study of consumer's behaviour, i.e., utility analysis explains, the want satisfying efforts by a consumer to maximise satisfaction.
Utility:
It means usefulness of a commodity, but in Economics, utility means want satisfying power of a commodity.
According to Prof. Stanley Jevons, "utility is the capacity of a commodity to satisfy human want".
Features of Utility
1. Relative concept
2. Subjective concept
3. Ethically neutral
4. Utility and usefulness are not same
5. Not same as pleasure
6. Utility differs from satisfaction
7. Not easily measurable
8. Depends upon intensity of want
9. It is the basis of demand
1. Relative concept:
Utility is related to time and place. It differs from time, to time and place to place. e.g. Cotton clothes in summer and woollen clothes in winter have greater utility. Similarly, woollen clothes have more utility in Kashmir than in Mumbai.
2. Subjective concept:
Utility of a commodity cannot be same for all individuals. It differs from-person to person, due to differences in taste, preference, choice, liking, etc., of the people. e.g. Utility of a book is greater for an educated person than an illiterate person.
3. Ethically neutral:
The concept of utility has no ethical consideration: It is morally neutral. A commodity which possesses utility may satisfy any want. It does not make any difference between good, bad, moral or immoral etc. e.g. Knife has utility for a housewife to cut vegetables and for a killer to harm somebody.
4. Utility and usefulness are not same:
Utility is the want satisfying power of a commodity, whereas usefulness is the benefit derived by a consumer. Utility expresses level of satisfaction of a consumer and usefulness indicates value in use of a commodity. A commodity which possesses utility may not be useful. e.g. A cigarette has utility for a smoker, but it does not have usefulness as it is injurious to health.
5. Not same as pleasure:
Utility and pleasure are different. A commodity may have utility, but its consumption may not provide pleasure or happiness. e.g. An injection has utility for a patient but it is painful, so it does not give pleasure.
6. Utility differs from satisfaction:
Utility and satisfaction are inter-related terms but there is a difference. Utility is the capacity of a commodity to satisfy human wants. Satisfaction is the feeling of happiness realised by the consumer Utility is related to the commodity, whereas satisfaction is experienced by a person. Utility is anticipated satisfaction but satisfaction is the actual realisation.
Thus, utility is the starting point of consumption and satisfaction is the rend result of consumption.
7. Not easily measurable:
Utility is a psychological concept. It is invisible and intangible. It cannot be, measured cardinally i.e., in numbers. However, one can ordinally measure it. e.g. A thirsty person after drinking water, may derive higher or lower level of utility.
8. Depends upon the intensity of want:
The utility of a commodity depends upon the intensity or urgency of a want. The more urgent is the want, the greater is the utility and vice versa. As the urgency of want declines, utility diminishes. e.g. Utility of food is higher for a hungry person and utility declines with the satisfaction of hunger.
9. It is the basis of demand:
Utility forms the basis of demand. If a commodity does not give any utility, a person may not demand it. He will demand a commodity only, if it gives him utility. e.g. Demand for pen is more from students because utility of pen is more for them.
Types of utility
Various types or forms of utility are as follows:
1. Form utility
2. Place utility
3. Time utility
4. Service utility
5. Knowledge utility
6. Possession utility
1. Form utility:
When utility increases due to the change in the shape or structure of existing material, it is called farm utility.
Toys made out of clay, making furniture from wood, a dress from fabric, etc., are some examples of form utility.
2. Place utility:
When utility of a commodity increases due to the change in the place of utilisation, it is also created with the transfer of goods from the place of production to the place where they are consumed. e.g. Sea sand has more utility in construction work than along the sea shore.
3. Time utility:
When utility of a commodity increases with a change ; in the time of utilisation, it is called time utility. e.g. Umbrellas have greater utility during rainy season than in winter.
Time utility also refers to storing of goods and using at the time of need or scarcity.
4. Service utility:
It arises when personal services are rendered by various professionals in the society to others. Services provided by doctors to patients, knowledge given by teachers to students, suggestions by lawyers to his clients, etc., are examples of service utility. In this case, production and consumption both. fake place at the same time.
5. Knowledge utility:
It increases when a consumer acquires knowledge about a particular product. e.g. Utility of. a mobile phone or computer increases when a person knows about its various functions.
6. Possession utility:
It arises when the ownership of goods is transferred from one person to another. e.g. Possession utility is enjoyed by the consumers when they purchase goods from sellers.
Concepts of utility
There are two main concepts of utility, as follows:
1. Total utility
2. Marginal utility
1. Total Utility:
Total utility refers to the sum of utilities derived by the consumer from all units of a commodity consumed. It is an aggregate of utilities from all successive units of a commodity.
TU = SMU or TUn = MU1 + MU2 + MU3 .... MUn
TU = Total Utility. MU = Marginal Utility.
2. Marginal utility:
It refers to the additional, utility derived by a consumer from additional unit of a commodity consumed. It is the utility from the last unit of a comniodity. In short, MU is the addition made by last unit to TU.
Relationship Between Total Utility (TU) and Marginal Utility (MU):
When a consumer goes on to consume the units of a commodity continuously the marginal utility derived from the successive units of the commodity goes on to fall constantly while other factors are held constant.
From the above statement regarding the consumer behavior the relationship between total utility (TU) and marginal utility (MU) is deducted as under:
- MU is the rate of change of TU.
- When the MU decreases, TU increases at decreasing rate.
- When MU becomes zero, TU is maximum. It is a saturation point.
- When MU becomes negative, TU declines
The standard quadratic form of the TU function is written as follows:
TU = aQ - bQ2
and MU = dTU / dQ = a - 2bQ
Slope of MU = dMU/dQ = -2b
By taking the successive values of Q, the relationship between MU and TU is represented in the following schedule:
| Quantity | Total Utility | Marginal Utility |
| 1 | 10 | 10 |
| 2 | 18 | 8 |
| 3 | 24 | 6 |
| 4 | 28 | 4 |
| 5 | 30 | 2 |
| 6 | 30 | 0 |
| 7 | 28 | -2 |
With the help of above schedule the relationship between TU and MU is explained as:
- In the above schedule MU decreases and TU increases at a decreasing rate upto 5th unit of commodity.
- MU becomes zero at 6th unit and TU = 30 become maximum.
- When MC becomes negative, the TU declines from 30 to 28 units at 7th units of a commodity.
With the help of the above schedule the relationship between MU and TU can be represented in the diagram.
- In figure (2), MU curve moves downward having negative slope while in figure (1) TC curve, having negative positive slope moves upward but tendency to move is towards x-axis, which shows decreasing rate.
- A point F´ in figure (2) MU curve cuts the s-axis at the 6th unit and TU curve has its maximum point F which is saturation point.
- At 7th unit MU curve is below x-axis as in figure (2) and TU curve declines from point 'F' to 'G' as in figure (1).
Mathematically:
MU = Change in TU / change in quantity consumed
MU = ∆TU / ∆Q
= 8 / 1
= 8
From point B to C
MU = ∆TU / ∆Q
= 6 / 1
= 6
This process remains upto point E and MU decreases.
From E to point F
MU = ∆TU / ∆Q
= 0 / 1
= 0
It is the representation of zero marginal utility.
While from point F to G
MU = ∆TU / ∆Q
-2 / 1
= -2
It is the representation of negative utility and total utility declines.
