Utility meaning in economics procured from the idea of usefulness. A product’s utility entirely relies on its capability to satisfy a consumer’s need or demand. There are various distinct representations of measuring the economic utility and the usefulness of a commodity or a service. It was first presented by an eminent Swiss mathematician, Daniel Bernoulli in the 18th century. From that time, the progression of economic theories has led to numerous kinds of economic utility.
There are mainly four kinds of utility: form utility, place utility, time utility, and possession utility. These utilities affect an individual’s decision to purchase a product. However, all of these utilities may leave a notable impact.
Consequently, firms and organisations have a reason to improve the utility of their commodities. By modifying the well-perceived products, they can bring in more customers and escalate their earnings. Let’s have a look at the four types of commercial utility in detail.
This type of utility is formed by the product design or the service itself. The more accurately a commodity or service is produced based on customer desires and requirements, the higher will be its accepting value (form utility).
In other words, form utility can be achieved by translating customer requirements and necessities into services and goods. To make this happen, companies examine their target areas and observe the potential consumers infer what they are looking for. This information is useful in placing product characteristics with real consumer requirements. So, form utility can be generated by making use of appropriate design, fine quality materials, and providing a wide range of resources from which to select.
For example, consider a car producing company named Luxury Cars. This organisation could sell vehicle parts separately. But, by assembling all the parts and presenting a whole vehicle, it adds to the value derived by consumers and increases the form utility.
By providing easy access to services and goods for the customers, place utility can be acquired. If a product can be purchased without putting much effort, consumers get more attracted to it. Place utility relies on the store sites on which the products are being sold and distribution mediums. Some economists even suggest that the availability of a product on the digital market influences utility. That is because nowadays, almost all varieties of goods and services can be purchased online.
Referring to the previous example, let’s think that Luxury Cars is an Indian company. If its vehicles are only sold within India, it won’t be attractive for people who live in Thailand. But, if Luxury Cars start dealing across the globe, place utility of the cars will increase for worldwide customers.
Time utility in economics can be obtained if a commodity or a service is readily available to customers when they need it. The availability of a product has to be fast. Moreover, time utility becomes high when a product or service is scarce. The supply chain management of a company has a substantial impact on time utility. It involves various processes, like logistics, storage, and delivery. Organisations are continuously enhancing their supply chain management systems to provide 24x7 availability and same-day delivery of a product.
For instance, consider an online car rental service. If a company can provide a rental car at a consumer’s disposal based on individual customers’ urgency of need, it can enhance time utility for consumers.
This utility defines the satisfaction and gains received from using and having a particular commodity. In general, a useful product holds a more enhanced possession utility. Concerning marketing theories – possession utility has its mention in the ease of possession as well. That is done through acquisition processes like credit cards or renting contracts. An easy acquisition makes a utility to be perceived highly by consumers. At the same time, after-sales services influence possession utility. The better the after-sales services, the more consumers will derive possession utility from using a particular product.
For instance, if a consumer notices that his AC is malfunctioning and cannot avail repairing services within an agreeable time, possession utility from that AC will fall. Conversely, if the concerned AC company promptly addresses the issue and fixes the AC within an agreeable period, possession utility will increase.
This analysis is a measurement of utility that tells how utility can be expressed in numbers, and a consumer can express his/her satisfaction numerically.
Ordinal utility analysis does not quantify utility in numerical expressions.
The above concept of utility is presented by Vedantu, and you can refer to our website for more topics related to Economics for senior secondary level.
1. What is Utility?
Utility meaning in economics refers to consumer enjoyment or satisfaction obtained from the usage or purchase of a commodity or a service.
2. What is Total Utility?
Total Utility is the total amount of satisfaction a buyer derives from a particular product or service.
3. Mention the Main Types of Utility.
There are four primary types of utility in economics:
4. What is Marginal Utility?
Marginal utility is the change in the total utility from consuming one extra unit of a commodity or service.