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What is Utility?

by Team Goseeko

In economics utility is the capacity of a commodity to satisfy human wants. Utility of a commodity is its want-satisfying capacity. The more the need of a commodity or the stronger the desire to have it, the greater is the utility derived from the commodity. Utility is subjective. Different individuals can get different levels of utility from the same commodity. For example, someone who likes chocolates will get much higher utility from a chocolate than someone who is not so fond of chocolates.

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.


According to Prof. Waugh:

“Utility is the power of a commodity to satisfy human wants.”

According to Fraser:

“On the whole in recent years the wider definition is preferred and utility is identified, with desireness rather than with satisfaction.”


1. Form Utility:

This utility is created by changing the form or shape of the materials. For example—A cabinet turned out from steel furniture made of wood and so on. Basically, utility is created by the manufacturing of goods. Form utility can be generated by making use of appropriate design, fine quality materials, and providing a wide range of resources from which to select.

2. Place Utility:

This utility is created by transporting goods from one place to another. Thus, in marketing goods from the factory to the marketplace, place utility is created. Similarly, when food-grains are shifted from farms to the city market by the grain merchants, place utility is created. Transport services are basically involved in the creation of place utilities. In retail trade or distribution services too, place utility is created. Similarly, fisheries and mining also imply the creation of place utility.

3. Time Utility:

Storing, hoarding and preserving certain goods over a period of time may lead to the creation of time utility for such goods e.g., by hoarding or storing food-grains at the time of a bumper harvest and releasing their stocks for sale at the time of scarcity, traders derive the advantage of time utility and thereby fetch higher prices for food-grains. Utility of a commodity is always more at the time of scarcity. Trading essentially involves the creation of time utility.

4. Service Utility:

This utility is created in rendering personal services to the customers by various professionals, such as lawyers, doctors, teachers, bankers, actors etc.

Measures of utility

Cardinal utility

Cardinal utility refers to the proposition that economic prosperity can be rightly perceived and provided with value. Individuals can determine the use of certain products consumed. It prompts measuring of the satisfactory levels in utils.

Ordinal utility

The functions that represent utility of a product according to its preference, but does not provide any numerical figure refers to ordinal utility. Ordinal utility believes that the satisfaction level cannot be evaluated; however, it can be levelled.

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