Utility and Prices

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.