ENGLISH FOR BUSSINESS I

UTILITY

PROGRAM STUDI ADMINISTRASI BISNIS INTERNASIONAL

POLITEKNIK PERTANIAN NEGERI PANGKAJENE KEPULAUAN
MELINE GERARITA S., S.H., M.H
MEANING OF UTILITY
• The simple meaning of ‘utility’ is ‘usefulness’.
• In economics utility is the capacity of a
commodity to satisfy human wants.
• Utility is the quality in goods to satisfy
human wants.
• Thus, it is said that “Wants satisfying
capacity of goods or services is called
Utility.”
MELINE GERARITA S., S.H., M.H
MEANING OF UTILITY
• 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.
• In modern time utility has been called as
‘expected satisfaction.’
• Expected satisfaction may be less or equal to or
more than the real satisfaction.
MELINE GERARITA S., S.H., M.H
DEFINITION OF UTILITY
• Utility is the power of commodity to satisfy
human wants. ( - PROF. WAUGH)
• On the whole in recent years the wider definition
is preferred and utility is identified, with
desireness rather than with satisfyingness ( -
FRASER)
• ability or capacity of a good or service to be
useful and give satisfaction to someone

MELINE GERARITA S., S.H., M.H

Characteristics of Utility
1. Utility has no Ethical or Moral Significance

A commodity which satisfies any type of

want, whether moral or immoral, socially
desirable or undesirable, has utility, i.e., a
knife has utility as a household appliance to a
housewife, but it has also a utility to a killer
for stabbing some body.
MELINE GERARITA S., S.H., M.H
2 Utility is Psychological
• Utility of a commodity depends on a consumer’s mental attitude and
assessment regarding its power to satisfy his particular want.
• Psychologically, every consumer has his likes and dislikes and
everyone determines his own level of satisfaction.
• For Example, a consumer who is fond of apples may find a high utility
in apples in comparison to the consumer who has no liking for apples.
Similarly a strictly vegetarian person has no utility for mutton or
chicken.

MELINE GERARITA S., S.H., M.H

3. Utility is always Individual and Relative
• Utility of a commodity varies in different situations in relation to time
and place.
• Even the same consumer may derive a higher or lower utility for the
same commodity at different times and different places.
• For example—a person may find more utility in woolen clothes during
the winter than in summer 

MELINE GERARITA S., S.H., M.H

4. Utility is not Necessarily Equated with Usefulness

• Utility simply means the ability to satisfy a want.

• A commodity may have utility but it may not be useful to the
consumer.
• For instance—A cigarette has utility to the smoker but it is injurious to
his health.
• However, demand for a commodity depends on its utility rather than
its usefulness.

MELINE GERARITA S., S.H., M.H

5. Utility cannot be Measured Objectively
• Utility being a subjective phenomenon or feeling of a consumer
cannot be expressed in numerical terms.
• So utility cannot be measured cardinally or numerically.
• It cannot be measured directly in a precise manner.

MELINE GERARITA S., S.H., M.H

6. Utility Depends on the Intensity of Want
• Utility is the function of intensity of want.
• A want which is unsatisfied and greatly intense will imply a high
utility for the commodity concerned to a person.
• But when a man is satisfied in the process of consumption it tends to
experience a lesser utility of the commodity than before.
• In other words, the more of a thing we have, the less we want it.

MELINE GERARITA S., S.H., M.H

7. Utility is Different from Pleasure
• A commodity may have utility but its consumption may not give any
pleasure to the consumer, e.g., medicine or an injection.
• An injection or medicinal tablet gives no pleasure, but it is necessary
for the patient.

8. Utility is also Distinct from Satisfaction

• Utility and satisfaction, both are though inter-related but they have not
been considered as the same in a strict sense.

MELINE GERARITA S., S.H., M.H

TYPES OF UTILITY
Different Types of Utility w.r.t Production
• In economics, production refers to the creation of utilities in several
ways.
• Thus, there are following types of utility w.r.t production:
1. Form Utility.
2. Place Utility.
3. Time Utility.
4. Service Utility.

MELINE GERARITA S., S.H., M.H

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, form utility is created by the manufacturing of goods.

MELINE GERARITA S., S.H., M.H

2. Place Utility
• This utility is created by transporting goods from one place to another.
• Thus, in marketing goods from the factory to the market place, place
utility is created.
• Similarly, when food-grains are shifted from farms to the city market
by the grain merchants, place utility is created.
• Place utility of a commodity is always more in an area of scarcity than
in an area of abundance.
• For Example, Kashmir apples are more popular and fetch higher prices
in Pune than in Srinagar on account of such place utility.

MELINE GERARITA S., S.H., M.H

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.
• For Example, 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.

MELINE GERARITA S., S.H., M.H

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

MELINE GERARITA S., S.H., M.H

Types of Utility w.r.t Unit of Consumption
This category has three following types:
(i) Marginal Utility
(ii) Total Utility
(iii) Average Utility.

MELINE GERARITA S., S.H., M.H

(i) Marginal Utility
• Marginal utility is the utility derived from the last or marginal unit of
consumption.
• It has been said—as the last unit in the given total stock of a commodity.
• According to Prof. Boulding, ”The marginal utility of any quantity of a
commodity is the increase in total utility which results from a unit increase in
its consumption.”
• For Example, Suppose Mr. Andi is consuming bread and he takes five breads.
• By taking first unit he derives utility up to 20; second unit 16; third unit 12;
fourth unit 8 and from fifth 2.
• In this example the marginal unit is fifth bread and the marginal utility derived
is 2.
• If we will consume only four bread then the marginal unit will be fourth bread
and utility will be 8.
MELINE GERARITA S., S.H., M.H
(ii) Total Utility
• Total Utility is the utility from all units of consumption.
• According to Mayers, ”Total Utility is the sum of the marginal utilities
associated with the consumption of the successive units.”
• Suppose, a man consumes five breads at a time. He derives from first
bread 20 units of satisfaction from second 16, from third 12, from
fourth 8 and from fifth 4 i.e., total 60 units.

MELINE GERARITA S., S.H., M.H

(iii) Average Utility
• Average Utility is that utility in which the total unit of consumption of
goods is divided by number of Total Units.
• The Quotient is known as Average Utility.
• For example, If the total Utility of 4 bread is 40 then the average
utility of 4 bread will be 10

• similarly the average utility of 3 bread will be 12

• if the total Utility of 3 bread is 36

MELINE GERARITA S., S.H., M.H

MELINE GERARITA S., S.H., M.H
THANKYOU
MELINE GERARITA S., S.H., M.H