Say, when you go to "Big Bazar" or "D-Mart" every month for a grocery shopping, you have an amount in your mind that you want to spend, let's take Rs. 2000 maximum. This means your objective will be to get maximum happiness or satisfaction from every rupee that you'll spend! But we know that happiness cannot be quantified or put into numerical terms. It's a feeling that can only be expressed. But interestingly, the concept of Utility in Economics tells you otherwise.
So, what is Utility?
Utility is the amount of satisfaction that you derive from the consumption of a product or service. For quantifying it, there is an abstract measure of satisfaction that people receive from a commodity, known as Util. Now, remember, a Util is an abstraction because it is something that doesn't exist in the real world (like an inch or pound). It is something in your mind representing one unit of satisfaction or happiness!
Moreover, the level of satisfaction for a particular product may vary from person to person as well as time-to-time. As per Prof. Hobson, “Utility is the ability of a good to satisfy a want”.
For Example - You love potato chips, so you assign 20 Utils as satisfaction from eating a packet of Potato chips but some other person may not be fond of it and get only 5 Utils of satisfaction.
How do you measure that happiness (Utility)?
The example below shows two popular approaches to measure satisfaction derived from the consumption of a product.
 |
| Byju's |
Cardinal Utility lets you quantify Utility by giving absolute values to it (measured in Utils). Another example will be - when you buy something from Flipkart or Myntra, they send a feedback form to you after delivery to rate (quantify) their services to measure how satisfied you are. This refers to measuring the Cardinality of their services!
Another approach is the Ordinal Utility where the consumers don't assign numerical values for utility but ranks the products or services in terms of their preferences. One thing to note is that Ordinal Utility can be either derived independently or through Cardinal Ratings. Using the similar example, say, you prefer Myntra over Flipkart for shopping or Maruti over Chevrolet when choosing cars!
Credits:
one of the main questions of economics involves deciding upon the method for pricing goods and services. confirmed rule! if a country has few goods it is doomed to begging and subsidies from developed countries
ReplyDeletejoy can be measured by an excellent assessment of the subject of economics studied: A critique of the exploding offer negotiation technique and the Farpoint Gambit
ReplyDeletemy happiness will be unlimited, if I manage to write a Movie Review on time
ReplyDelete