PART ONE MICROECONOMICS
The Concept of Utility
Economists first began to analyze consumer behavior over a century ago when it was fashionable in psychological circles, to assert that much of human behavior could be explained by people's desire to realize as much“pleasure”and to avoid as much“pain”as possible.The pleasure-pain doctrine was quickly borrowed by economists
and applied to the sphere of consumer expenditures in what became the first systematic theory of motivated consumer behavior;the basic economic thesis was that rational consumers would, quite intentionally, manage their purchases of goods and services so as to realize the greatest possible amount of overall total“satisfaction.”Economists labeled the wantsatisfying power of goods and services as“utility.”
The concept of utility refers to the pleasure or satisfaction associated with having, using, consuming, or benefiting from goods or services.The utility inherent in a good or service derives from whatever qualities it has that gives it want-satisfying capabilities.The sources and causes of utility are legion:better health, esthetic beauty or design, ease of use, flavor and taste, durability, convenience, luxury, comfort, a sense of individuality, pleasure, prestige, status, pride, security, ego gratification, and power—to mention the most obvious.Hence, utility has both objective and subjective features and, most particularly, utility is a matter of individual taste, preference, perception, personality makeup, and state of mind.
As a consequence, the utility that a good possesses or is perceived to possess is variable, not absolute.In the first place,no two people necessarily will view a good as having the same degree of want-satisfying powers—one person may derive great utility from smoking cigarettes while someone else finds them distasteful; Cadillacs may be important status symbols to some people（and hence have great utility）, yet have little or no appeal to other people.Different people buy the same product for quite different uses and motivations.Peanuts, for instance, are bought by some people to serve at cocktail parties, by others to make peanut brittle, and by some to feed to squirrels, with potentially different utilities to each buyer in each case.Moreover, the utility of a good can vary from time to time, or place to place. Rising gasoline prices quickly modified the utility many people placed on small cars. Wool clothing does not have the same utility or want-satisfying powers for people living in short-winter climates as for those living in long-winter climates.But irrespective of the wide variations that different persons may place on the utility of a good or service, the utility concept offers a purposeful basis for establishing consumer preferences for what and how much they will purchase because it leads to comparisons of the amounts of satisfaction received from different consumption rates of different goods and services.
It is, of course, doubtful that the intensity of satisfaction one gains from an item can be represented precisely in cardinal rankings whereby numerical values are assigned to represent utility. One may say that“broiled lobster is my favorite food”or“I enjoy broiled lobster more than any other seafood or meat”; but if asked“how much do you enjoy broiled lobster? ”one can scarcely reply“about 17”and expect to convey understanding. The subjective nature of the utility concept is, however, susceptible to ordinal ranking measure. In ordinal preference patterns, one only has to be able to rank alternatives—from highest to lowest, best to worst, or most satisfying to least satisfying; no attempt is made to quantify the amount by which one alternative is better（or worse）than others.
Despite the fact that utility is not subj ect to precise quantification, it is still analytically useful to assume that utility can be represented by cardinal numbers.Doing so makes it easier to illuminate several important aspects of consumer behavior.
From Arthur A.Thompson, Jr.and John P.Formby, Economics of the Firm:Theory and Practice 6th ed.© 1993, pp.36-37.Reprinted by permission of Prentice-Hall, Englewood Cliffs, New Jersey.
KeyTerms and Concepts
Cadillac a brand name of car.
status symbols symbols which represent people's position or state, namely, wealthy or poor.
intensity of satisfaction a phrase used to describe how much the satisfaction is.
cardinal rankings one of the two ways to measure utility.In this way, numerical values are assigned to represent utility.
ordinal rankings one of the two ways to measure utility.In this way, utility is measured without a specified unit.Ordinal rankings provide the order of preference without absolute scale of difference in preference.
ordinal preference patterns all kinds of preferences ranked by certain kinds of preference standards.