Concept Of Utility In Economics

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1. What is the concept of utility? Utility in economics refers to the happiness or satisfaction derived from the consumption of a good or service. Since utility differs from person-to-person, place-to-place, and time-to-time, economists do not care what gives utility and simply accept that one has his or her own preferences (Wheelan, 2012). Although it is impossible to precisely measure utility, some economists use an imaginary measurement, known as “util,” to express utility in numerical terms. However, “util” cannot be considered as a standard measurement because it varies from person to person. Several economists thus have suggested the measurement of utility in monetary values in order to easily compare utility and the price paid (Chand,…show more content…
Total utility is the total amount of utility from the consumption of a give quantity of a good or service (Rittenberg & Tregarthen, 2009). For instance, if the utility of eating an apple is 5 units and that of eating a second apple is 4 units, the total utility from eating two apples is 9 units. Marginal utility, on the other hand, is the amount by which total utility rises with the consumption of an additional unit of a good or service (Rittenberg & Tregarthen, 2009). Continued from the example above, if eating a third apple increases the total utility to 12 units, the marginal utility from eating the third apple is 3 units. Marginal utility decreases as one consumes more and more of a product – a principle called the law of diminishing marginal utility (Rittenberg & Tregarthen, 2009). This law can be illustrated by a simple example: one chocolate bar would cause one to become full and satisfied (positive utility) but a hundred chocolate bars would cause one to get sick of them (zero, or even negative, utility). Understanding these concepts is vital in grasping the concept of…show more content…
Because opportunity cost is one of the most fundamental concepts in economics, it is also called economic cost (Economic cost, n.d.). Opportunity cost can also be represented as the sum of explicit costs and implicit costs. Explicit cost is the monetary expense that is easily identified (Explicit cost, n.d.). If a student decides to attend university, for example, the explicit cost is the costs of tuition, textbooks, and possibly a dorm room. On the other hand, implicit cost is the lost opportunity in the use of resources, excluding cash (Implicit cost, n.d.). In the previous example, the student’s implicit costs include the potential income and experience the student would have earned if he or she had worked instead of studied. The student’s opportunity cost is therefore the sum of financial costs and potential

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