Utility and Satisfaction

- is the quality in goods to satisfy human wants. Thus, it is said

that “Wants satisfying capacity of goods or services is called Utility.”
In this way utility is measured in terms of money and it is relative. There
is difference between utility and usefulness. A useful commodity may
not here utility of goods depend upon the intensity of wants.

A consumer buys or demands a particular commodity he derives some

benefit from its use. He feels that his given want is satisfied by the use
or consumption of the commodity purchased. Utility is the basis of
consumer demand. A consumer thinks about his demand for a
commodity on the basis of utility derived from the commodity.

Utility depends upon the intensity of want. When a want is unsatisfied

or more intense, there is a greater urge to demand a particular
commodity which satisfies a given want. In modern time utility has
been called as ‘expected satisfaction.’ Expected satisfaction may be less
or equal to or more than the real satisfaction.

Utility is the power of satisfaction or the satisfying power of any good

but satisfaction is the end of utility of a good, i.e., when a good that has
satisfying power is consumed, that power of satisfaction ends in
consumption. This ending of utility or satisfying power of a good is
called satisfaction 

Production Function

- Relates physical output of a production process to physical inputs or

factors of production. It is a mathematical function that relates the
maximum amount of output that can be obtained from a given number
of inputs – generally capital and labor. The production function,
therefore, describes a boundary or frontier representing the limit of
output obtainable from each feasible combination of inputs.
 Law of Marginal Diminishing Returns

1. -used to refer to a point at which the level of profits or benefits

gained is less than the amount of money or energy invested.

ISO Cost

-A curve that represents a combination of various inputs that cost the

same

ISO Quant

-Isoquant is also called as equal product curve or production

indifference curve or constant product curve. Isoquant indicates various
combinations of two factors of production which give the same level of
output per unit of time. The significance of factors of productive
resources is that, any two factors are substitutable e.g. labour is
substitutable for capital and vice versa. No two factors are perfect
substitutes. This indicates that one factor can be used a little more and
other factor a little less, without changing the level of output.

Cost

-In business, cost is usually a monetary valuation of (1) effort, (2)

material, (3) resources, (4) time and utilities consumed, (5) risks
incurred, and (6) opportunity forgone in production and delivery of a
good or service. All expenses are costs, but not all costs (such as those
incurred in acquisition of an income-generating asset) are expenses. An
amount that has to be paid or given up in order to get something.
Fixed and Variable Inputs

-The most common example of a fixed input is capital. The alternative

to fixed inputis variable input. A fixed input, such as capital, provides
the "capacity" constraint for the short-run production of a firm.
A variable input, such as labor, provides the means of changing short-
run production.

Revenue and Profit

-Profit is the net income of the business. In

general,profit equals revenue less expenses. However, companies
typically calculate multiple measures ofprofit on an income statement.
Gross profit shows the total revenue minus the variable costs, or cost
of goods sold.

Total Utility

-Total utility is the total satisfaction received from consuming a

given total quantity of a good or service, while marginal utility is the
satisfaction gained from consuming another quantity of a good or
service. Sometimes, economists like to subdivide utility into individual
units that they call utils.

Marginal Utility

-Marginal utility is the additional satisfaction a consumer gains from

consuming one more unit of a good or service. Marginal utility is an
important economic concept because economists use it to determine
how much of an item a consumer will buy. Positive marginal utility is
when the consumption of an additional item increases the total utility.
Negative marginal utility is when the consumption of an additional item
decreases the total utility.

Budget Line

-Budget line is a graphical representation of all possible combinations

of two goods which can be purchased with given income and prices,
such that the cost of each of these combinations is equal to the money
income of the consumer.

Indifference Curve

-a curve on a graph (the axes of which represent quantities of two

commodities) linking those combinations of quantities that the
consumer regards as of equal value.

Water-Diamond Theory

-The paradox of value (also known as thediamond–water paradox) is

the apparent contradiction that, although water is on the whole more
useful, in terms of survival, than diamonds, diamonds command a
higher price in the market.

Value of Exchange

- refers to one of four major attributes of a commodity, i.e., an item or

service produced for, and sold on the market. The other three aspects
are use value, economic value, and price.

Value of Use
-value in use is the utility of consuming a good—the want-satisfying
power of a good or service in classical political economy