Utility is the want-satisfying power of a good or service — the capacity of a commodity to satisfy a human want. It is the psychological satisfaction a consumer expects or gets from consuming a good.

What it is

Utility is the foundation of consumer-behaviour theory. It is not the same as usefulness, satisfaction, or pleasure in everyday speech. In economics it simply means the power to satisfy a want, whether or not that want is wise. A cigarette may be harmful yet still yield utility to a smoker.

Key characteristics

• Subjective / psychological: it exists in the consumer's mind, so it cannot be seen or measured with certainty.
• Relative, not absolute: utility of a good varies with time, place, and the person. Woollen clothes have high utility in winter, low in summer.
• Differs from usefulness: a good may have utility without being useful (harmful goods).
• Ethically neutral: utility carries no moral judgement.
• Differs from satisfaction: utility is expected satisfaction before consumption; satisfaction is what is actually realised after consumption.

Utility vs need, demand, usefulness …