Utility

What is utility?

Utility refers to the satisfaction derived from the consumption of a good or service. On the other hand, utility is the measure of a consumer’s perception about a specific commodity, which they experience from consuming the good.

Utility is measured in two ways:

i) Cardinal measurement;

ii) Ordinal measurement

i) Cardinal measurement: in this type of measurement utility is assumed to be expressed in definite numbers such as 1, 2, 3 etc. i.e. utility is a quantifiable entity.

ii) Ordinal measurement: In this type of measurement, utility is measured as per preference about a group commodity. Let, it be assumed that a person consumes four separate commodities. Ordinally he can express his preference by assigning numbers like 1^st, 2^nd, 3^rd and 4^th.