Utility in economics refers to the satisfaction or pleasure that a consumer derives from consuming a good or service. It is a key concept in understanding consumer behavior, as it explains why individuals make certain purchasing decisions. Utility is subjective and varies from person to person; what provides high utility to one individual may provide little to none for another.
There are two main types of utility: total utility and marginal utility. Total utility is the overall satisfaction gained from consuming a certain quantity of goods or services, while marginal utility refers to the additional satisfaction obtained from consuming one more unit of a good or service. The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction from each successive unit decreases. For example, the first slice of pizza might bring a lot of satisfaction, but by the fourth or fifth slice, the additional enjoyment is likely to be much less.
Utility is central to the theory of consumer choice, which seeks to explain how consumers allocate their limited resources (income) to maximize their satisfaction. By understanding utility, economists can better predict consumer behavior and how changes in price, income, or preferences can influence demand for goods and services.
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