Utility Theory

• Utility Theory

  • In economics, utility refers to the satisfaction, well-being or value that an individual derives from consuming goods & services
• Marginal Utility

  • It refers to the additional satisfaction or utility gained from consuming one more unit of good or service
• The Law of diminishing marginal utility

  • It states that as a person consumes more units of a particular good or service while keeping the consumption of other goods constant, the additional satisfaction or marginal utility gained from each additional unit will decrease
• Disutility

  • Is the opposite of utility. While utility represents the satisfaction or benefit gained from consuming G+S, disutility refers to the negative feelings, discomfort or displeasure associated with certain activities, G+S.
• Total Utility

  • The total satisfaction from a given level of consumption
• Rational Choice Theory

  • It assumes that consumers always behave rationally in allocating their limited budget between different products to maximise total satisfaction from their purchases.