Module 8 – THE CONCEPT OF CHOICE AND UTILITY

1. What is utility in economics?

 In economics, utility is the capacity of a commodity to satisfy human wants. Utility is
the quality in goods to satisfy human wants. 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. Utility is different for different
people. Utility is always changeable and it changes according to time and place.
Therefore, it is difficult to measure such thing who is of changeable nature.

2. Differentiate between total utility and marginal utility.

 Total utility is the aggregate of satisfaction that a consumer derives from the
consumption of any particular goods or services. Total utility rises as more
consumption is done. It suffers from diminishing returns.
 Marginal utility is the amount of satisfaction derived by a consumer by additional
consumption of a unit of any particular goods or services. Marginal utility diminishes
with an increase in total utility. Marginal utility reduces with the consumption of each
additional unit.

3. Explain the law of diminishing marginal utility.

 The law of diminishing marginal utility explains that as a person consumes an item or a
product, the satisfaction or utility that they derive from the product wanes or declines
as more of it is consumed by an individual. Marketers use the law of diminishing
marginal utility because they want to keep marginal utility high for products that they
sell. A product is consumed because it provides satisfaction, but too much of a product
might mean that the marginal utility reaches zero because consumers have had enough
of a product and are satiated.

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