Utility:
Utility is the satisfaction the customers obtain after consumption of a product.The purchase of product should be able to satisfy the customer.Preferences and tastes varies for every person.Generally there are no standards units for measuring utility. Later they developed a new measurement known as utils.Utils cannot me measured.These are subjective.
Ex: The happiness we get after purchasing a new car.
Generally Utility can be measured in two ways:
Cardinal Utility:
In Cardinal Utility we can assign numerical value to utility.Ratings are used to measure cardinal utility. Cardinal Utility mainly focuses on quantitative measurement.
Ex: If we purchased a product online to express our satisfaction we give ratings to the product or website.
Ordinal Utility:
Rankings are used to measure Ordinal Utility.It cannot be measured using numerical units.Ordinal Utility mainly focuses on qualitative measurement.
Ex: I prefer buying clothes rather than buying gold.
The behavior of a consumer can be explained using three types of utility:
Total Utility:
Total Utility is total satisfaction we get from the purchase of total quantity of products or services.
Marginal Utility:
Marginal utility is additional satisfaction we get after purchasing one more unit of commodity.It differs by one unit from total utility.
Average Utility:
Average Utility is satisfaction we get per unit commodity.
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