Utility and Prices

Our basic needs are simple, but our additional individual wants are often very complex. Commodities of different kinds satisfy our wants in different ways. A banana, a bottle of medicine and a textbook satisfy very differents wants. The banana cannot satisfy the same wants as the textbook.

This characteristic of satisfying a want is known in economics as its 'utility'. Utility, however, should not be confused with usefulness. For example, a submarine may or may not be useful in time of peace, but it satisfies a want. Many nations want submarines. Economists say that utility determines 'the relationship between a consumer and a commodity'.

Utility varies between different people and between different nations. A vegetarian does not want meat, but may rate the utility of bananas very highly, while a meat-eater may prefer steak. A mountain-republic like Switzerland has little interest in submarines, while maritime nations rate them highly.

Utility varies not only in relation to individual tastes and to geography, but also in relation to time. In wartime, the utility of bombs is high, and the utility of pianos is low. Utility is therefore related to our decisions about priorities in production-particularly in a centrally-planned economy. The production of pianos falls sharply in wartime.

The utility of commodity is also related to the quantity which is available to the consumer. If paper is freely available, people will not be so interested in buying too much of it. If there is an excess of paper, the relative demand for paper will go down. We can say that the utility of a commodity therefore decreases as the consumer's stock of that commodity increases.