Utility
Candlefocus EditorThe concept of utility is generally divided into two branches: “ordinal” utility and “cardinal” utility. Ordinal utility refers to the concept that one good or service is more desirable than another. It is based on the premise that consumers have a preference or ranking of goods or services, with most desirable goods or services being ranked higher than less desirable goods or services. On the other hand, cardinal utility takes the concept one step further, and assumes that all goods or services can be quantified in imaginary units called “utils”. For example, a consumer could assign a certain utilities value to a movie ticket, and assign a higher utilities value to a ticket to a sporting event.
Marginal utility is the idea that the utility gained from the consumption of an additional unit of a service or good decreases with each additional unit consumed. In other words, consumers experience diminished utility when they buy more of a certain good or service. This concept is important because it helps explain why consumers may not buy more of a good or service even though the price is low.
In conclusion, utility is an important concept in economics that helps explain why consumers make certain decisions. It is based on the concept that consumers rank goods and services in order of desirability and that these goods and services can be assigned a series of imaginary units, known as “utils”. Furthermore, marginal utility describes the idea that the utility gained from the consumption of an additional unit of a service or good decreases with each additional unit consumed, which helps explain why consumers may not buy more of a certain good or service even if the price is low.