Utility

The capacity of a good that satisfies a human want. In other words, utility is the want satisfying power of a good. Also, it means the power of a commodity to satisfy a human want.

Kinds or Types of Utility

Utilities are classified into different kinds. A particular kind or type of utility for a commodity is found in a particular situation. The kinds of utilities are

1) Form utility

2) Place utility

3) Time utility

4) Possession utility.

1. Form Utility

By changing the form of a good, the greater utility is created. It does not mean that before the change of form of good, there was no utility. It means that change in the form offers greater utility to the good. Examples: the transformation of a log of wood in to a piece of furniture, Processing of paddy into rice, wheat into flour, coffee seeds into coffee powder, butter into ghee, cotton into cloth, etc.

2. Place Utility

Utility can also be increased by transporting a good from one place to another. Such utility is called place utility. Spatial movement of the goods i.e., moving a good from one place or market to another place or market increases its utility. Mostly the goods are transported from the places of production down to the places of consumption and also from the places of surplus production to the places of scarcity. For example, cement is transported from the places of production to the areas of consumption; Apples from Himachal Pradesh, the area of abundant production are transported to Southern and Western parts of the country (non producing areas), thereby increasing the utility of apples.

3. Time Utility

Any time lag between production and consumption of commodities creates time utility. Through storage over time, a greater utility is created for the products. Storage helps to create time utility. Agricultural production being season bound with consumption spreading throughout the year, the commodities need to be made available to the consumers as and when required. The storage helps us to perform this function. Agricultural commodities like paddy, wheat, oilseeds, pulses, etc., are stored to make them available for the regular use of consumers throughout the year.

4. Possession Utility

Commodities in the transaction process change the hands from one person to another person. Commodities in the hands of producers have some utility and by the time they reach consumers through the traders their utility is increased. Such utility due to possession or transfer of ownership of the commodity is called possession utility. For example, paddy in the hands of producers, i.e., farmers are having less utility compared to that of consumer in the form of rice. Similarly, any other commodities like fruits, vegetables, livestock products, etc., would have higher utility when these goods change hands from farmers

Characteristics of Utility

1. Utility is Subjective: Utility is not satisfied by itself; it is subjective to the interest of an individual. It depends on the individual’s frame of mind. Hence a given commodity need not bring the same utility to all the consumers. Utility varies from person to person. For example, a blind man cannot see a picture and it has no utility for him. A non-vegetarian food to a vegetarian, alcohol to a teetotaler, motorcycle to a child, etc., give zero utility. Utility varies with a regular smoker when compared with an occasional smoker and similarly for a regular non-vegetarian to an occasional non-vegetarian. Utilities derived by the occasional users of a good are greater than those of regular users.

2. Utility Varies with Purpose: Depending upon the purpose for which a commodity is used, utility of the same varies. For example, utility derived from water varies from its use as drinking water against its use as irrigation or for power generation or for industrial use, etc.

3. Utility Varies with Time: A particular commodity gives different utilities for the same person in different time periods. Cool drinks and ice-creams provide greater utility to the same individual in summer than in winter. The wine stored over time in scientific warehouses would have higher utilities and fetch higher price.

4. Utility Varies with Ownership: Ownership of a good creates far greater utility from a good than that when it is hired. For a farmer, land ownership brings higher utility over leasing in the land. Similarly, owing farm machinery offers greater utility than hiring in, for a farmer.

5. Utility Need not be Synonymous with Pleasure: Utility derived from a commodity need not be associated always with pleasure for the consumer, Consuming items of our taste brings in the utility one expects. Similarly, buying an asset also gives the desired utility. These are all the pleasures enjoyed by the consumer from the goods. As against this, consumption of a good is a painful feeling for an individual though it possesses utility. For example, for a sick man, bitter medicines are difficult to swallow.

6. Utility does not Mean Satisfaction: Utility is not satisfaction by itself. Utility is the quality of a good by virtue of which it gives satisfaction to an individual. The question of obtaining satisfaction from a good depends on the consumer’s choice for the same.