Utility

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Utility refers to that ability in good and services to satisfy consumers . Utility can further be classified as cardinal utility and ordinal utility . For cardinal utility theory it attaches the significance to the magnitude of utility i .e . the size of utility difference between bundles of goods is supposed to have some significance . For ordinal utility this theory formulates consumer behaviour in term of consumer preferences . The only property of utility assignment that is important is how it rank ) bundles of

goods But the main concern of an economist is the marginal utility . Marginal utility of a good is described as the amount by which U (X1 , X2 ) changes when an extra unit of good is consumed . Utility is measured in unit called utils and depend on taste and consumer preferences (Beardshaw , 2001

The economic objective of individuals is to maximise utility given a specific amount of income to spend . Consumers have variety of consumption bundles which they would like to purchase but due to scarcity of resources there is a budget constraint which limit the amount of goods that individuals can be able to buy and this necessitate choice to be made between various consumption bundles . For a rational consumer his economic objective will be to choose that bundle that maximise his utility . This bundle is found at the point of tangency between the indifferent curve and budget line

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Any bundle above this specific bundle is unaffordable . A...