Page 63 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes If this measure is given, one may think of increasing or decreasing utility, and thereby explain
economic behavior in terms of attempts to increase one’s utility. Changes in utility are sometimes
expressed in fictional units called utils.

The concept of utility can be looked upon from two angles: the commodity angle and the
consumers’ angle. At first sight, utility is the want-satisfying property of a commodity. And at

the other, utility is the psychological feeling of satisfaction; pleasure, happiness or well-being
which a consumer derives from the consumption, possession or the use of a commodity. The
concept of a want-satisfying property of a commodity is ‘absolute’ in the sense that this property
is inbuilt in the commodity irrespective of whether one needs it or not.

Example: A pen has its own utility of writing irrespective of whether a person is literate
or illiterate.

Another important feature of the ‘absolute’ concept of utility is that it is ‘ethically neutral’
because a commodity may satisfy socially immoral needs, for example alcohol. Contrary to the
consumer’s point of view, utility is supposed as a post-consumption phenomenon as one derives
satisfaction from a commodity only when one consumes or uses it.
Utility in terms of satisfaction is a subjective or relative concept because (i) a commodity need
not be useful for all. For instance, cigarettes do not have any utility for non-smokers and meat
has no utility for pure vegetarians; (ii) utility of a commodity varies from person to person and
from time to time; and (iii) a commodity need not have the same utility for the same consumer at
different points of times, at different levels of consumption and at different moods of a consumer.
In consumer analysis, only the ‘subjective’ concept of utility is used.

5.2 Types of Utility

Let’s learn about different kinds of utility:

Total Utility (TU)

The total satisfaction derived from the use of all the units of goods and services in a given period
of time is called total utility. In other words, the total of marginal utility is called total utility. It
can be expressed as:
TU = f(x)
where, TU = Total utility
f = Function

x = Consumed units of commodity (number of goods)

Average Utility (AU)

Average utility is a utility which is derived from per unit of commodity. In the other words,
the utility which is derived by dividing the total utility by the total units of goods and services
consumed is the average utility. It can be expressed as:
TU
AU =
x
where, AU = Average utility
TU = Total utility
x = Consumed goods and services.

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