After understanding the meaning of utility, the next big question is: How to measure utility? According to classical economists, utility can be measured, in the same way, as weight or height is measured. For this, economists assumed that utility can be measured in cardinal (numerical) terms. By using cardinal measure of utility, it is possible to numerically estimate utility, which a person derives from consumption of goods and services. But, there was no standard unit for measuring utility. So, the economists derived an imaginary measure, known as ‘Util’.
Utils are imaginary and psychological units which are used to measure satisfaction (utility) obtained from consumption of a certain quantity of a commodity.Example – Measurement of satisfaction in utils:
Suppose you have just eaten an ice-cream and a chocolate. You agree to assign 20 utils as utility derived from the ice-cream. Now the question is: how many utils be assigned to the chocolate? If you liked the chocolate less, then you may assign utils less than 20. However, if you liked it more, you would give it a number greater than 20. Suppose, you assign 10 utils to the chocolate, then it can be concluded that you liked the ice-cream twice as much as you liked the chocolate
Utility is the capacity of a commodity to satisfy human wants. It is defined as a "want satisfying power of a commodity” Acc. To Hibbdon “Utility is the quality of a good to satisfy a want”.
Total Utility (TU): -
Total utility refers to the total satisfaction obtained from the consumption of all possible units of a commodity. It measures the total satisfaction obtained from consumption of all the units of that good. For example, if the 1st ice-cream gives you a satisfaction of 20 utils and 2nd one gives 16 utils, then TU from 2 ice-creams is 20 + 16 = 36 utils. If the 3rd ice-cream generates satisfaction of 10 utils, then TU from 3 ice-creams will be 20+ 16 + 10 = 46 utils.
TU can be calculated as:
TUn = U1 + U2 + U3
+……………………. + Un
Where:TUn = Total utility from n units of a given commodity
U1, U2, U3……. UN = Utility from the 1st, 2nd, 3rd nth unit
n = Number of units consumed
Marginal Utility (MU): -
Marginal utility is the additional utility derived from the consumption of one more unit of the given commodity. It is the utility derived from the last unit of a commodity purchased. As per given example, when 3rd ice-cream is consumed, TU increases from 36 utils to 46 utils. The additional 10 utils from the 3rd ice-cream is the MU.
In the words of Chapman, “Marginal utility is
addition made to total utility by consuming one more unit of a commodity”.
MU can be calculated as: MUn = TUn – TUn-1
Cardinal utility (CU): -
Measurement of utility in terms of money is called Cardinal Utility Approach. The amount of money which a consumer is prepared to pay for a commodity in the indirect measurement of its utility. Cardinal numbers are those which can be added or subtracted. Fisher has used the term ‘Util’ as a measure of utility.
Cardinal utility (CU): -
Measurement of utility in terms of money is called Cardinal Utility Approach. The amount of money which a consumer is prepared to pay for a commodity in the indirect measurement of its utility. Cardinal numbers are those which can be added or subtracted. Fisher has used the term ‘Util’ as a measure of utility.
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