The Concept Of Utility

The Concept of Utility

Christopher Leach

Regent University

The concept of utility in economics is one that at times can be confusing. First of all we must know what utility actually means in regards to Economics. Investopedia defines utility as "An economic term referring to the total satisfaction received from consuming a good or service (Investopedia, 2011)." Utility can be used in many different ways to have an impact on the world. Companies can use utility as a way to gauge if consumers are satisfied with the goods or services that are being provided. Consumers are thought to make choices that would maximize their utility which is a good assumption except many times a consumer's availability in choosing goods or services are directly impacted by their budget. Many time people will have to put off achieving maximum utility for the simple reason that they cannot afford to be where they want to be or because they are saving to maximize at a later time. Utility is controlled or thought of in many ways by assumptions. In our text Charles Wheelan explains that economist assume that individuals act because they want to make themselves seem as well off as they possibly can, they seek to maximize their utility in a way that is similar to the concept of happiness (Wheelan, 2010, p. 6).There are times in which we do things because we have to, not so much because we want to, this in itself can be a form of utility. Consumers have preferences in what we may or may not want. Our text talks about how we get immunizations and pay taxes; not so much because we want to but because in essence they help us, immunizations can help to keep us from getting sick or even dying, and paying taxes will keep us out of jail. Something that is important to remember about utility which in essence can could complicate utility is that just because a good or service may have utility for one person at a specific time it may not have it for another person at the same time. This can cause the actual measurement of utility to be off at the very minimum. While this makes it difficult to measure it can still be ranked by companies in the order of the preference to the consumers, this is because the choice is constrained by the income and the price of the consumer so one may spend more while others would not spend it due to the restraint on their income or ability to pay for the good or service (Theory, 2011). There are many different forms of utility some could include the stock market, insurance, and health care. All of these are directly tied to the ability of the consumer to pay for the goods/services rendered. One who has a large amount of property or expensive property would be more inclined to pay a larger insurance premium to insure those goods. On the opposite side those with less valuable possessions might be inclined to pay a smaller premium because it is much easier to replace the items of lesser value. While searching the internet I found it difficult to find exact examples of utility but I did find something that I felt made perfect sense and was a great example