Utility

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  • Satisfaction derived from the consumption of a good or service that is measured in utils. It is not very easy to quantify satisfaction, but economists use cardinal measure rather than ordinal measure to make comparative analysis. Ordinal measure does not provide useful information for comparative analysis because it is based on ranking, which does not indicate absolute measurable differences.

    Cardinal measure indicates concrete numerical preferences. A consumer is in equilibrium when he or she allocates income to such an extent that the last monetary unit spent on each good or service produces the same amount of additional (marginal) utility.

    Utility is a useful theory to explain consumer behavior in the market place. Consumers will usually demand more of a good when the price of a good falls ...

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