Scribd
Upload
44 views7 pages

Economics: Prepared by Faisal Sultan Qadri

Utility refers to the satisfaction or benefit derived from consuming goods and services. There are two approaches to measuring utility - the cardinal and ordinal approaches. The cardinal approach treats utility as a quantifiable element that can be measured, while the ordinal approach treats utility as relative rankings of preferences. Consumer equilibrium is reached when a consumer maximizes total utility subject to a budget constraint, choosing the bundle of goods that provides the highest total utility per unit of currency spent.

Uploaded by

adnanahmar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
44 views7 pages

Economics: Prepared by Faisal Sultan Qadri

Utility refers to the satisfaction or benefit derived from consuming goods and services. There are two approaches to measuring utility - the cardinal and ordinal approaches. The cardinal approach treats utility as a quantifiable element that can be measured, while the ordinal approach treats utility as relative rankings of preferences. Consumer equilibrium is reached when a consumer maximizes total utility subject to a budget constraint, choosing the bundle of goods that provides the highest total utility per unit of currency spent.

Uploaded by

adnanahmar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 7

Economics

Prepared by Faisal Sultan Qadri


uTILITY

It is the property of an object to produce pleasure, well-being or happiness


Jeremy Bentham (1748-1831)

Utility is the subjective pleasure or usefulness that a person delivers from


consuming a good or service.

Utility is the measure of satisfaction, associated with the consumption of


goods and services.
Cardinal Utility Approach
 Cardinal utility approach treats Coke Total Marginal
utility as a measurable and Utility Utility
quantifiable element like weight,
Height, Distance, Volume, Etc. 0 0 -
1 10 10
 Total utility is the sum of the
satisfaction associated with the 2 15 5
consumption of several units of a
commodity(Commodities). 3 18 3
4 19 1
 Marginal utility is the change in
the total utility due to the 5 19 0
consumption of an additional unit
of commodity. 6 17 -2
Consumer Equilibrium
Statement: I would much rather have a BMW instead of my Suzuki FX
If I want to maximize my utility, why don’t I buy a BMW?

!!! Because it costs a lot more than the FX So if I want to maximize my


utility, I don’t just pick the thing that gives me the most pleasure. I have
to weigh the price of the good in my decision as well

So how can I compare a BMW and a SUZUKI? It’s like comparing


apples and oranges. Instead, I need to somehow make them both
comparable.
In order to do that I will need to convert utility to utility
per Rupee. This way, I can see that even though the BMW
gives me more utility, I get more utility per Rupee from the
FX. So if I want to spend my money wisely, I buy the thing
that gives me more utility per Rupee.
• Let’s say I walk down to the cafeteria for lunch and they have
Pizza and Ice Cream.

• The pizza is Rs.1 a slice and the Ice Cream is Rs.2 a scoop. I have
Rs.7 in my pocket What do I buy?

• Remember, I want to choose the combination of pizza and Ice


Cream that gives me the greatest possible utility for my $7

• Consider the following table, which states the total utility I get
from all possible quantities of Pizza and Ice Cream
Utility Table

Pizza
Ice Cream
Quantity Total Util. Marginal Util. Total Util. Marginal Util.

0 0 -- 0 --
1 24 24 29 29
2 44 20 46 17
3 60 16 56 10
4 70 10 58 2
5 72 2 59 1
6 72 0 59 0

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy