Utility and Prices
Our basic needs
are simply, but our additional individual wants are often very complex. Commodities
of different kind satisfy our wants in different way. A banana, a bottle of
medicine and a textbook satisfy very different wants. The banana cannot satisfy
the same wants as the textbook.
This
characteristic of satisfying a want is known in economics as its ‘utility’. Utility,
however, should not be confused with usefulness. For example, a submarine may
or may not be useful in time of peace, but it satisfies a want. Many nations
want submarines. Economist say that utility determines ‘the realitionship between
a consumer and a commodity’.
Utility
varies between different people and between different nations. A vegetarian
does not want meat, but many rate the utility of banana very highly, while a
meat-eater many prefer steak. A mountain-republic like Switzerland has little
interest in submarines, while maritime nations rate them highly.
Utility
varies not only in relation to individual tastes and to geography, but also in
relation to time. In wartime, the utility of bombs is high, and the utility of
pianos is low. Utility is therefore related to our decisions about priorities
in production – particularly in a centrally – planned economy. Te production of
pianos falls sharply in wartime.
The
utility of a commodity is also related to the quantity which is available to
the consumer. If paperis freely available, people will not be so interested in
buying to much of it. If there is an excess of paper, the relative demand for
paper will go down. We can say that the utility of a commodity therefore
decreases as the consumer’s stock of that commodity increases.