EconGuru Economics Guide RSS Syndication

EconGuru Economics Guide » Utility

© Copyright 2006 - 2011 EconGuru.com. All rights reserved. Assets marked and linked to the original sources are hereby used for educational purposes only and are copyrighted by their respective owners.

Subscribe to EconGuru.

Utility

Economic utility, or utility, is an abstract concept that measures the relative satisfaction or gratification gained by consuming goods and services. It's not a concrete observable quantity.

Total utility is the sum of satisfication or benefit an individual gains from consuming a given bundle of goods and services, while marginal utility is the additional benefit he gains by consuming an extra unit of consumption.

It is presumed in economics that any individual, or organization, or even society, is looking to maximize its utility.

marginal benefit illustration

You can see a decreasing marginal utility or marginal benefit against a constant marginal cost, because every additional bottle of Coca Cola is bought at the same price. When you are scorchingly thirsty, a bottle of iced Coca Cola can give you so much satisfaction and enjoyment that you value it far above its price and you buy it without any hesitation. However, as you drink more, you are not that thirsty any more and value the same bottle of iced Coca Cola not so much as you previously did. Your thirsty is reduced little by little with every additional unit of Coca Cola until you eventually value a bottle of Coca Cola equally with its price. And your incentive to buy it finally disappears.

<?php bloginfo('name'); ?>

Educating the public since 2006.