UTILITY THEORY

Question 1

Refers to want the satisfying power of a commodity. It is the satisfaction, actual or expected, derived from the consumption of a commodity.

Answer 1

Utility

Question 2

differs from person-to-person, place-to-place and time-to-time.

Answer 2

Utility

Question 3

“Utility is the ability of a good to satisfy a want”.

Answer 3

words of Prof. Hobson

Question 4

The commodity is capable of satisfying human wants, we can conclude that the commodity has

Answer 4

Utility

Question 5

How to Measure Utility?

Answer 5

Util

Question 6

These are imaginary and psychological units that are used to measure satisfaction (utility) obtained from the consumption of a certain quantity of a commodity.

Answer 6

Utils

Question 7

Suggested the measurement of utility in monetary terms.

Answer 7

Alfred Marshall

Question 8

Utility can be measured in terms of money or price, which the consumer is willing to pay.

Answer 8

TRUE

Question 9

Refers to the total satisfaction obtained from the consumption of all possible units of a commodity.

Answer 9

Total Utility (TU)

Question 10

The additional utility is derived from the consumption of one more unit of the given commodity.

Answer 10

Marginal Utility (MU)

Question 11

“Marginal utility is the addition made to the total utility by consuming one more unit of a commodity”

Answer 11

Chapman

Question 12

MU is positive and TU is increasing till the 4th ice-cream. After consuming the 5th ice-cream, MU is zero and TU is maximum.

Answer 12

TRUE

Question 13

stage of maximum satisfaction.

Answer 13

point of satiety

Question 14

MU is negative

Answer 14

Disutility or Dissatisfaction

Question 15

Is the opposite of utility. It refers to loss of satisfaction due to the consumption of too much of something.

Answer 15

Disutility

Question 15

A commodity which satisfies any type of want, whether moral or immoral, socially desirable or undesirable, has utility, i.e., a knife has utility as a household appliance to a housewife, but it has also a utility to a killer for stabbing some body.

Answer 15

Utility has no Ethical or Moral Significance

Question 16

It’s based on the cardinal counting numbers like 1, 2, 3, 4.

Answer 16

The Cardinal Approach or the Marginal Utility Approach

Question 16

This means ranking items under consideration from most satisfaction to the least

Answer 16

Ordinal Approach or the Indifference Curve Approach

Question 16

Utility of a commodity depends on a consumer’s mental attitude and assessment regarding its power to satisfy his particular want. Thus, utility of a commodity may differ from person to person. Psychologically, every consumer has his likes and dislikes and everyone determines his own level of satisfaction.

Answer 16

Utility is Psychological

Question 17

Utility simply means the ability to satisfy a want. A commodity may have utility but it may not be useful to the consumer. For instance—A cigarette has utility to the smoker but it is injurious to his health.

Answer 17

Utility is not Necessarily Equated with Usefulness

Question 17

The utility of a commodity varies in different situations in relation to time and place. Even the same consumer may derive a higher or lower utility for the same commodity at different times and in different places. For example—a person may find more utility in woolen clothes during the winter.

Answer 17

Utility is always Individual and Relative

Question 18

Utility being a subjective phenomenon or feeling of a consumer cannot be expressed in numerical terms. So utility cannot be measured cardinally or numerically. It cannot be measured directly in a precise manner. Professor Marshall has however, unrealistically assumed cardinal measurement of utility in his analysis of demand.

Answer 18

Utility cannot be Measured Objectively:

Question 19

Utility is the function of the intensity of want. A want that is unsatisfied and greatly intense will imply a high utility for the commodity concerned to a person.

Answer 19

Utility Depends on the Intensity of Want

Question 20

A commodity may have utility but its consumption may not give any pleasure to the consumer, e.g., medicine or an injection. An injection or medicinal tablet gives no pleasure, but it is necessary for the patient.

Answer 20

Utility is Different from Pleasure

Question 21

Utility and satisfaction, both are interrelated but they have not been considered as the same in a strict sense.

Answer 21

Utility is also Distinct from Satisfaction

Question 22

This utility is created by changing the form or shape of the materials. For example—A cabinet turned out from steel furniture made of wood and so on. Basically, form utility is created by the manufacturing of goods.

Answer 22

Form Utility

Question 23

This utility is created by transporting goods from one place to another. Thus, in marketing goods from the factory to the market place, place utility is created. Similarly, when food-grains are shifted from farms to the city market by the grain merchants, place utility is created.

Answer 23

Place Utility

Question 24

Storing, hoarding and preserving certain goods over a period of time may lead to the creation of time utility for such goods e.g., by hoarding or storing food-grains at the time of a bumper harvest and releasing their stocks for sale at the time of scarcity, traders derive the advantage of time utility and thereby fetch higher prices for food-grains. Utility of a commodity is always more at the time of scarcity. Trading essentially involves the creation of time utility.

Answer 24

Time Utility

Question 24

This utility is created in rendering personal services to the customers by various professionals, such as lawyers, doctors, teachers, bankers, actors etc.

Answer 24

Service Utility

Question 25

Objective: to maximize satisfaction Subject to: income and the prices of goods and services Assumptions:

Answer 25

MARGINAL UTILITY OR THE CARDINAL APPROACH

Question 26

a locus of all combinations of two goods which yield the same level of satisfaction (utility) to the consumers.

Answer 26

Indifference curve