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    Economics: Prepared by Faisal Sultan Qadri

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    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.

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    Economics: Prepared by Faisal Sultan Qadri

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    adnanahmar
    27 views7 pages
    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.

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    Economics lecture 2..Utility

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    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.

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    27 views7 pages

    Economics: Prepared by Faisal Sultan Qadri

    Uploaded by

    adnanahmar
    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.

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    of 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

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