Utility

The concept of utility is central to neoclassical economics, providing the logical basis for the concept of supply in the law of supply and demand.

Definition

Utility has a precise meaning in economics but that meaning is not easily defined. The utility of an item to a person is a measure of how much he wants it, but it is not a measure that can be expressed as a numerical quantity. How much he wants it can, it is true, be measured as the amount of some other item that he is willing to give in exchange for it, but that amount will depend upon how much of both items he already has. There is, in fact, no logical possibility of a numerical measure of utility. Utility is necessarily an “ordinal measure”. That means that, although a person can rank the utilities that he gets from two different items in order of magnitude, he cannot assign a numerical magnitude to either, and although he is aware that getting more of an item increases his utility, he cannot say by how much. Nor is it logically possible to compare the utility experienced by different persons. Nevertheless the concept of utility has been widely employed in development of economic theory.

Origins

The term utility was mentioned by the classical economists, but its present-day usage is generally attributed to William Stanley Jevons . It was discovered independently by Alfred Marshall and he explained it in words and in mathematical terms in his Principles of Economics .