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Utility

Definition

Utility refers to the satisfaction or happiness that individuals derive from consuming goods and services.

Analogy

Think of utility as your personal enjoyment level when playing video games. The more you play, the higher your utility (satisfaction) level becomes. Similarly, when consumers consume more goods and services, their utility increases.

Related terms

Total Utility: Total utility is the overall amount of satisfaction obtained from consuming all units of a particular good or service.

Marginal Utility per Dollar Spent: This term measures how much additional satisfaction a consumer gets from spending one more dollar on a specific good or service.

Diminishing Marginal Utility: Diminishing marginal utility states that as an individual consumes more units of a good or service, each additional unit provides less additional satisfaction than before.