What is Utility and Characteristics of Utility in Economics

Wed, 08/06/2014 - 00:00 -- Umar Farooq

What is Utility

Utility is the power of a good or the service by which it can satisfy a human want. According to physics, matter can neither be produced nor destroyed. Therefore, what can produced and consumed is the utility. In terms of economics consumer demands only those products which have utility to satisfy his wants. For example he demands food, shelter, entertainment etc. because food has to satisfy hunger and shelter is where you can live in peace.

Utility and Satisfaction

There are different levels of utility. It is the inner characteristics of a product by which it can satisfy human wants, whereas satisfaction is achieved after the product is used. For example, pen has the usefulness by which a letter can be written, but satisfaction is achieved after the letter has been written.

Utility and Usefulness

There is also difference between utility and usefulness. Usefulness is a general term and coveys the positive effect of a product. On the other hand, it is strictly an economic term. Economics as a science remains neutral between good and bad ends products. Hence, the power of a product, good or bad, which can be used to satisfy a human want is known as utility. For example, cigarette and cold drink can satisfy wants. But cigarette lacks usefulness because it is not useful for the health.

Total Utility

TU derived from the consumption of certain units of a commodity. Number of units consumed increased total utility increases with a diminishing rate.

Marginal Utility

Marginal utility is derived from consumption of one additional unit of a commodity. Following is the calculating marginal utility formula.

MUn = TUn – TUn-1 or

MUn = DTU/DQ              where DQ = 1

Characteristics of Utility in Economics

It Depends on Human Wants

If a person consumes a product he finds utility in it and if he does not use it he does not find it. For example, there is no utility in wine for a Muslim, where as a non-Muslims will find it because it satisfies their wants. Moreover, a product gives more utility in case we need it urgently and vice versa.

Depends on Use

If we make an appropriate use of a product it will yield high amount of utility. Conversely, if we misuse it, it utility will fall. For example, the utility of a chair will be high if we use it as a chair otherwise we will get nothing.

Depends on Knowledge

We can increase the utility by the advancement of knowledge. For example, solar energy exist centuries ago but it give a little utility. Now with the advancement of science and technology its utility has increased many times.

Depends on Ownership

The commodity lying in a shop has a utility in it but will not give you unless you buy it. Hence, utility can be obtained only by ownership.

Depends on Number

The utility of some products will increase by an increase in the number of that product with the people. For example the utility of a telephone will increase in case the number of telephone connections in the city increase.

Depends on Form

As a product it also depends on its form and hence called form utility. Take the case of wood. It does not have much utility in it. But if wood is changed into chair its utility will go up. Similarly, there is not much utility in leather whereas it has a lot in the form of shoes.

Depends on Place

The utility of certain products depends on the place, where they are being used. For example, woolen clothes do not give place utility in the equator region whereas they give a lot of utility in cold region.

Depends on Time and Season

The products utility depends on time and season as well. For example, electric light gives a lot of utility during night time but it decreases during the day time. Similarly, ice has utility for the people during summer season and loses it during the winter season.