Kinds and Concepts of Utility in Economics

Every individual looks forward to satisfying his/her wants with the resources
available. The concept of utility analysis in Economics elaborates on the relation
between a consumer’s behaviour and the maximum satisfaction that he derives
from different commodities. Utility is a relative concept. It varies from time to time
and place to place. It also differs from person to person due to differences in tastes,
preferences, habits, etc. Generally, utility is confused with usefulness. However,
utility and usefulness are completely different. A commodity which might have
utility for one might not necessarily be useful at the same time. For example,
alcohol has no usefulness to an addict but he derives utility from it.

Kinds of Utility-
There are four main kinds of utility- form utility, time utility, place utility and
possession utility.

1. Form utility-
When utility is created due to a change in the form i.e. shape or structure of
an existing material, it is called form utility. For example: furniture made
from wood. Form utility majorly depends on the most convenient form of
the resource available i.e. finished products made from the same raw
material. The designing and packaging plays a major role in increasing the
form utility of a product.

2. Time utility-
When a change in the time of utilization of a commodity results in an
increase in its utility, it is called time utility. For example: a student has more
utility for textbooks during exams than vacations. It is also observed that
time utility increases at the time of scarcity. For example: blood from a
blood bank.

3. Place utility-
When a change in the place causes an increase in the utility derived, it is
called place utility. For example: woollen clothes have more utility in
 northern India as compared to the south. Sales of a commodity also increases
based on the availability of it in that particular place. The utility derived
automatically increases.

4. Possession utility-
When the transfer of the ownership of a commodity causes more utility, it is
termed as possession utility. For example: transfer of grains from farmers to
buyers. The sooner the product is delivered, the more possession utility is
derived by the consumers. Having the possession of a commodity is a proof
of ownership of the same.

Concepts of utility-
The two main concepts of utility are explained below:

1. Total Utility-
Total utility, also abbreviated as TU refers to the aggregate utility derived by
the consumer after consumption of all the units of a commodity. It is a total
of the utility derived from all successive units consumed.

2. Marginal Utility-
Also abbreviated as MU, marginal utility refers to the additional utility
which is derived by the consumption of each additional unit of a commodity.

Marginal utility and total utility are interrelated. The total utility curve slopes
upwards while the marginal utility curve slopes downwards. There comes a stage
when total utility reaches to its maximum and continues to remain constant. This is
when the marginal utility becomes zero. The point where TU is the highest and
MU=0 is known as the point of satiety. After reaching this point, a rational
consumer stops consumption since the maximum limit of satisfaction has been
achieved. Consumption beyond this point results in dissatisfaction.

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