Utility - Tips
In economics, utility is a measure of the relative
happiness or satisfaction (gratification) gained. Given this measure, one may
speak meaningfully of increasing or decreasing utility, and thereby explain
economic behavior in terms of attempts to increase one's utility. The
theoretical unit of measurement for utility is the util.
The doctrine of utilitarianism saw the maximization of utility as a moral
criterion for the organization of society. According to utilitarians, such as
Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1876), society should aim
to maximize the total utility of individuals, aiming for "the greatest happiness
for the greatest number".
In neoclassical economics, rationality is precisely defined in terms of
imputed utility-maximizing behavior under economic constraints. As a
hypothetical behavioral measure, utility does not require attribution of mental
states suggested by "happiness", "satisfaction", etc.
Utility is applied by economists in such constructs as the indifference
curve, which plots the combination of commodities that an individual or a
society requires to maintain a given level of satisfaction. Individual utility
and social utility can be construed as the dependent variable of a utility
function (such as an indifference curve map) and a social welfare function
respectively. When coupled with production or commodity constraints, these
functions can represent Pareto efficiency, such as illustrated by Edgeworth
boxes and contract curves. Such efficiency is a central concept of welfare