Shiksha Mandal's

G. S. College Of Commerce,
Wardha
Junior college
e-learning classes

SUBJECT : ECONOMICS
Unit –II

By : Mragi Gautam

Prof. Pravin Thakare Dr.Sahebrao Chavan

Co-ordinator Principal(Officiating)
 CHAPTER 2
UTILITY ANALYSIS
Introduction:
 Human wants are unlimited.
 Every individual tries to satisfy his wants with available resources.
 All human wants cannot be satisfied at one time.
 A particular want can be satisfied fully at a specific time.

Meaning:
 Utility is an economic term.
 Utility means usefulness.
 It is the total satisfaction received from consuming a good or
service also known as satisfying power of a commodity.
 Utility is the ability of a good or service to satisfy human wants.

Features of Utility:
 Relative Concept :
 Utility is related to time and place.
 It differs from time to time and place to place.
 For eg. Greater utility of AC in summer rather than winter and
lesser utility of AC in hilly areas as compared to plains.
 Subjective Concept :
 Utility of a commodity is not same for all individuals.
 It differs from person to person due to difference in taste,
preference, choice, liking, etc.
 It depends not only on psychological attitude but also on the
intensity of desire.

 Ethically Neutral:
 Ethical means related to moral principles.
 Concept of utility has no ethical considerations.
 Commodity possessing utility may satisfy any want
irrespective of difference between good, bad, moral,
immoral. Therefore, it is ethically neutral.
 For eg. a knife has utility to a person when it is used to cut
fruits and vegetables and it has utility for the other person as
well who uses it to physically harm someone .

 Utility and usefulness are different :

 Utility and usefulness appears to be similar but they are not
same.
 Utility is want satisfying power of a commodity.
 Usefulness is benefit derived by a consumer.
 A product may have utility irrespective of the fact that the
commodity is useful or harmful.
 For eg. Cigarette and tobacco has utility for a person but as it
is harmful for health it doesn’t have usefulness.
 Utility differs from pleasure:
 Utility and pleasure are not same.
 A commodity may have utility but may not provide pleasure.
 Medicines and injections have great utility but do not give
pleasure and happiness to the person consuming them.

 Utility differs from satisfaction:

 Utility and satisfaction are interrelated but different.
 Utility is the capacity of a commodity to satisfy human wants.
 Utility is related to a commodity or is derived from a
commodity.
 Satisfaction is experienced by a person.
 Utility is anticipated satisfaction.
 Satisfaction is actual realization.

 Measurement of utility is hypothetical:

 Utility is a qualitative concept
 It is a psychological concept.
 It is a satisfaction that a consumer experiences from a
product or service which is invisible and intangible.
 Utility cannot be measured cardinally, i.e.in numbers
 Utility is ordinally measured which uses rankings instead of
values.
 For eg. : A thirsty person after drinking water may derive
higher or lower level of utility.
 Utility may be either positive, zero or negative.
 Negative utility is called disutility.
 Utility is multipurpose:
 One commodity can satisfy want of more than one person
 It can be put to several uses.
 For example : Electricity

 Utility depends on intensity of want:

o Utility of a commodity is directly proportional to the intensity
or urgency of want.
o The more intense or urgent the want, the more utility the
commodity has.

 Utility is the basis of demand:

o Utility is the base of demand.
o No utility means no demand.
o Product will have demand only when it gives utility.
 Utility Analysis
Types of Utility:
Form Utility:
 Form utility is created by changing the form and
shape of the goods.
 Manufacturing goods create form utility.
 Business organisations are engaged in research to
know exactly what products or services consumer
desire and then attempt to provide these products to
the consumer.
 The raw materials and semi finished goods are
converted to produce final consumer goods.
 For eg. : The utility increases when wood is
transformed into furniture.

Place Utility :
 When utility of a commodity increases due to change in
the place of utilization, it is called as place utility.
 It refers to making goods or services available readily
and conveniently to the potential customer.
 Place utility is created by transfer of goods from place of
production to the place where they are consumed.
 Transport creates place utility.
 For eg. : The utility of food grains increases when shifted
from farms to the city market.
Time Utility:
 When utility of a commodity increases due to the
change in the time of utilization it is called time utility.
 The utility of time refers to easy availability of products
or services at the time when consumer needs or wants
to purchase them.
 It also refers to storing of goods and using them at the
time of need or scarcity.
 Warehouses create time utility.
 For eg. : Woollen clothes have more utility during
winters.

Service Utility:
 When utility is obtained from the services of a professional,
it is called as service utility.
 Services provided by doctors to patients, lawyers to clients,
etc. come under service utility.

Knowledge Utility:
 When the utility of a commodity increases due to
awareness and knowledge acquired by the buyer about a
commodity, it is called knowledge utility.
 Knowledge utility increases through advertisements,
promotion and demonstration of goods.
 For eg: utility of mobile phones or computer will increase
when a person has the knowledge about its functioning.
Possession Utility:
 The utility of possession refers to the benefit customers
derive from ownership of a product they purchase.
 It arises when ownership of goods is transferred from one
person to another person.
 For eg. : Utility of a product increases when transferred
from seller to a buyer (through a purchase).
Answer the following :
Give reasons :
1. Utility differs from usefulness.
2. Utility is a relative concept.
 Shiksha Mandal's

G. S. College Of Commerce
Wardha

junior college
e-learning classes

TCEJBUS : ECONOMICS
Unit –II

By: Mragi Gautam

Prof. Pravin Thakare Dr. Sahebrao Chavan

Co-ordinator Principal (Officiating)
Chapter 2 Utility Analysis
CONCEPTS OF UTILITY:
Utility is the want satisfying power of a commodity. It is the
capacity of a commodity to satisfy human wants.
There are two concepts of utility viz.:

UTILITY

TOTAL MARGINAL
UTILITY UTILITY

:
1. TOTAL UTILITY (T.U.)

 It refers to the sum total of utilities derived by a consumer

from the consumption of all successive units of a
commodity consumed at a particular point of time.
 Each individual unit of a good or service has its own
marginal utility.
 Total utility is the sum of all the marginal utilities of the
individual units at a point of time.
 For eg. If there are three ice creams, then total utility is the
sum total of the utilities that are derived from consuming
all the three ice creams at a point of time.
Symbolically it can be represented as:

TU = Ʃ MU OR

TUn = Ʃ MU1+MU2+MU3+...... +MUn

Where

TU = Total Utility

MU = Marginal Utility
2. MARGINAL UTILITY:

 It refers to the additional utility derived by a consumer

from an additional unit of a commodity consumed.
 It is the addition made by the last unit of a commodity
consumed to Total Utility.
Symbolically it can be represented as:

MUn = TU n – Tu (n-1)
Where
MUn = Marginal utility of nth unit of a commodity,
TUn = Total utility derived from consumption of n units.
TU(n-1) = Total Utility at previous level.

RELATIONSHIP BETWEEN TOTAL UTILITY AND

MARGINAL UTILITY:

Symbolically it can be represented as:

MUn = TU n – Tu (n-1)
Where
MUn = Marginal utility of nth unit of a commodity,
TUn = Total utility derived from consumption of n units.
TU(n-1) = Total Utility at previous level.
HOME WORK :
Complete the chart given on page no 12 , differentiating Total
utility and Marginal Utility,