The starting point of the functioning of any economic system is the needs of people. Consumption is the process of satisfying needs. Good is a means of satisfying needs. There are a huge number of goods that satisfy the needs. What kind of good, and in what quantity should be produced, is determined by the consumer. In a market economy, only such goods that can be sold at a price exceeding the cost of their production are allowed. Consumers, buying such goods, evaluate the work of producers. Each consumer makes their own decision. It is believed that there is no single scale for assessing goods. But each consumer has his own scale of preferences. Each consumer seeks to choose the most preferable set of goods within his income. This assumption is a hypothesis about the rational behavior of the consumer.
If a product or service satisfies the desires and needs of the consumer, then they have utility. Utility is the satisfaction or pleasure received by a person from the consumption of a particular product or service.
The concept of utility studies the satisfaction or pleasure derived from owning, using, consuming, or benefiting from a good or service. Usefulness lies in the qualitative characteristics by which they satisfy the needs. It is the result of individual taste and perception. The same products have different utility for different consumers.
Total utility is the entire amount of satisfaction received from a given quantity of goods over a certain period of time. Overall utility increases with consumption, but at a slower rate. Such dynamics is explained by the fact that the utility of each additional unit of goods decreases.
There are two main approaches to measuring utility: cardinalist (quantitative) and ordinal (ordinal).
The quantitative approach to the analysis of utility is based on the idea of the possibility of measuring the utility of various goods in hypothetical units – utils (utility – utility). It is assumed that the consumer can compare different products in terms of their preferences and order them according to a certain scale of preference, that is, the consumer can determine the difference in the utilities of different goods or their set. This means that a particular consumer can say that the consumption of one cup of coffee brings him satisfaction in 30 yutiles, two cups of coffee – 56 yutiles, two cups of coffee and one cigarette – 70 yutiles, etc. This approach is the basis of consumer choice, the purpose of which is to maximize overall utility with limited income.
It should be borne in mind that quantitative assessments of the usefulness of a product are exclusively individual, subjective in nature. The same product can be of great value to one consumer and no value to another. For a non-smoking and non-drinking coffee person, their consumption has no usefulness, rather, on the contrary, it brings harm. Consequently, the quantitative approach does not have the ability to objectively measure the usefulness of a particular product in utiles. It is also impossible to compare the amount of satisfaction received by different consumers. It is assumed that only a particular consumer can quantify, in utls, the usefulness of any commodity set he consumes.
The quantitative function of total utility (TU) is initially increasing, has a maximum point (S), after which it becomes decreasing. For specific consumers, it is very important to feel the point of maximum utility and stop excessive consumption of goods. Therefore, they say that the most valuable feeling is a sense of proportion.
Marginal utility (MU) is the increase in the total utility of a commodity set as the volume of consumption of a given good increases by one:
Most often, as can be seen in the lower graph, the marginal utility falls and at the maximum point becomes zero, and then negative.
However, the ability of a person to evaluate the usefulness of a particular commodity set in a certain number of units of utility is questioned. More common is the view that a person has a relationship of preference in the evaluation or usefulness of certain goods.