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What is 'utility', and how does it relate to purposeful behavior?

Short Answer

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Utility measures a person's level of satisfaction after consuming a commodity. Utility helps weigh the extent to which the consumed good can serve the purposeful behavior.

Step by step solution

01

Meaning of utility

A person consumes a commodity to fulfill his needs. The consumed commodity may fulfill the need up to a certain level instead of fully satisfyingThe utility shows that the satisfaction level is associated with good when used to satisfy a human want.

For example, if a person is willing to pay $2 for 1 unit of apple and $1 for 1 unit of banana, the utility of an apple is $2, and the utility of a banana is $1. It concludes that apple carries the satisfying power of $2, and banana carries the satisfying power of $1 for the person. Thus, utility is the satisfying power that goods or services possess for fulfilling human wants.

The utility shows that the satisfaction level is associated with good when used to satisfy a human want.

For example, if a person is willing to pay $2 for 1 unit of apple and $1 for 1 unit of banana, the utility of an apple is $2, and the utility of a banana is $1. It concludes that apple carries the satisfying power of $2, and banana carries the satisfying power of $1 for the person. Thus, utility is the satisfying power that goods or services possess for fulfilling human wants.

02

Relationship between utility and purposeful behavior

Before coming to an economic decision, the consumer weighs the benefits and costs associated with it. An individual's purposeful behavior behind consuming a good or service is to satisfy their wants to the maximum.

When a commodity is consumed, the utility helps measure the benefits associated with the goods. With the help of utility, the consumer can project the extent to which the goods are going to meet the outcome. In this way, utility is related to purposeful behavior.

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Most popular questions from this chapter

How does the slope of a budget line illustrate opportunity costs and trade-offs? How does a budget line illustrate scarcity and the effect of limited incomes?

What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain.

Suppose that you are given a \(100 budget at work that can be spent only on two items: staplers and pens. If staplers cost \)10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is

a. 10 pens.

b. 5 pens.

c. zero pens.

d. 4 pens.

Indicate whether each of the following statements applies to microeconomics or macroeconomics.

The unemployment rate in the United States was 3.7 percent in December 2018.

a. A U.S. software firm laid off 15 workers last month and transferred the work to India.

b. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise.

c. U.S. output, adjusted for inflation, increased by 2.3 percent in 2017.

d. Last week, Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point.

e. The consumer price index rose by 2.2 percent from November 2017 to November 2018.

Suppose you won \(15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost \)0.75 each, while bags of peanuts cost \(1.50 each.

  1. Construct a table showing the alternative combinations of the two products that are available.
  2. Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? What is the opportunity cost of one more bag of peanuts? Do these opportunity costs rise, fall, or remain constant as additional units are purchased?
  3. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy?
  4. Suppose thatyou had won \)30 on your ticketnot \(15. Show the \)30 budget line in your diagram. Has the number of available combinations increased or decreased?
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