Chapter 4 Relationship between utility and price

There is no clear relationship between utility and price.

To back up a second, utility in economics is the concept that something is useful in

satisfying a consumer want.

This gets us to certain paradoxes, like the diamond-water paradox. Diamonds cost more
than water, but in terms of satisfying the daily life requirements, and consumer wants,
water is far more useful.

To drive the point further, we spend nothing (except device-cost and connection fees) to
watch them, but a lot of people online spend a lot of leisure time doing so. There is a
leisure utility in cat videos, but we can’t really quantify the price of cat videos, except
through the concept of opportunity costs.

This is because price is determined not by utility, or the usefulness of a good, but by its
scarcity. Exceptions certainly exist, like luxury goods or Giffen goods, though more
empirical evidence is required for Giffen goods to be substantiated.