Among a plethora of concepts I have learned in my economics' classes, one of the more peculiar concept is the idea of utilities. I was introduced to this idea in my introduction class freshman year but was left scratching my head even more when delving into this concept in my intermediate microeconomics class last semester.
The principle of utility is the capacity of a commodity (good and/or service) to give satisfaction or pleasure. It is simply a measure of how much satisfaction a consumer has from consuming a good or service. For example, imagine a very, very hungry individual craving a juicy hamburger. The very first hamburger consumed would heavily increase the utility of the individual. The second hamburger consumed would also increase its utility but not as the same effect as the first hamburger. Eventually, the individual would feel full and at a certain number of hamburger would have no effect in increasing its utility and/or may even decrease its utility.
This simple concept is at the heart of microeconomics and even macroeconomics. We are often calculating to find the maximum utility for an individual. Of course, there is a twist. Maximizing its utility is often subject to its budget/income constraint but I will not focus on that for this post.
In order to "quantitatively" calculate how many hamburgers provide an individual with the absolute maximum utility, it would require us to form a utility function that mathematically attempts to describe the consumer's behavior. This is where I begin to question the viability of this very concept. Reality is not so discrete and coming up with a single numerical answer is just computationally impossible. People's preferences change and highly revolves around the "qualitative". To resolve this issue, economists have laid down a number of assumptions to maintain the viability of utility functions but such assumptions seem to make the whole concept diverge from practice.
I find it very far-fetched that an individual can discretely order a bundle of goods in strict preference. In my opinion, preferences are highly volatile and utility functions are strictly a "snapshot" of a instant point in time that may not entirely capture a consumer's behavior. There is no room for change. People purchase goods on impulse all the time and may also be influenced by the advice of others. In addition, utility functions are deemed unique to an individual. It is so unique that it is not universal, which means that comparing two individuals' utility functions are not possible. One cannot compare a strict list of preferences among consumers.
So what is the solution? I do not know. Perhaps there is room for collaboration with other social sciences such as psychology that we could benefit from, especially in understanding consumer behavior. Perhaps the idea of utility is not meant to be mathematically described in the first place. We may never know...
Image: http://www.yourarticlelibrary.com/economics/the-concept-of-utility-its-meaning-total-utility-and-marginal-utility-economics/8866
The principle of utility is the capacity of a commodity (good and/or service) to give satisfaction or pleasure. It is simply a measure of how much satisfaction a consumer has from consuming a good or service. For example, imagine a very, very hungry individual craving a juicy hamburger. The very first hamburger consumed would heavily increase the utility of the individual. The second hamburger consumed would also increase its utility but not as the same effect as the first hamburger. Eventually, the individual would feel full and at a certain number of hamburger would have no effect in increasing its utility and/or may even decrease its utility.
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| A utility curve using ice cream as an example! |
This simple concept is at the heart of microeconomics and even macroeconomics. We are often calculating to find the maximum utility for an individual. Of course, there is a twist. Maximizing its utility is often subject to its budget/income constraint but I will not focus on that for this post.
In order to "quantitatively" calculate how many hamburgers provide an individual with the absolute maximum utility, it would require us to form a utility function that mathematically attempts to describe the consumer's behavior. This is where I begin to question the viability of this very concept. Reality is not so discrete and coming up with a single numerical answer is just computationally impossible. People's preferences change and highly revolves around the "qualitative". To resolve this issue, economists have laid down a number of assumptions to maintain the viability of utility functions but such assumptions seem to make the whole concept diverge from practice.
I find it very far-fetched that an individual can discretely order a bundle of goods in strict preference. In my opinion, preferences are highly volatile and utility functions are strictly a "snapshot" of a instant point in time that may not entirely capture a consumer's behavior. There is no room for change. People purchase goods on impulse all the time and may also be influenced by the advice of others. In addition, utility functions are deemed unique to an individual. It is so unique that it is not universal, which means that comparing two individuals' utility functions are not possible. One cannot compare a strict list of preferences among consumers.
So what is the solution? I do not know. Perhaps there is room for collaboration with other social sciences such as psychology that we could benefit from, especially in understanding consumer behavior. Perhaps the idea of utility is not meant to be mathematically described in the first place. We may never know...
Image: http://www.yourarticlelibrary.com/economics/the-concept-of-utility-its-meaning-total-utility-and-marginal-utility-economics/8866
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