Dec 12, 2019

Utility in economics | What is demand in economics

Utility meaning 

The utility means the amount of satisfaction an individual get for consuming a commodity. it is also defined as want satisfying power of commodity. The utility of goods is important determinant of the consumer for the good. It is assumed that the individual tries to maximize his utility or satisfaction from the goods he buys for consumption. Consumer demand for consumer goods for their own satisfaction is called direct demand. Utility is the subjective entity and resides in the mind of men being subjective it varies from person to person .different person derive the different amount of utility from the given good. The desire for the commodity by a person depends upon the utility he expects. the greater the utility he expects from a commodity the greater he desires for that commodity. Alcohol and smoking may actually harm persons but it possesses utility for those whose want they satisfy.

The Definition of Total Utility
If utility in economics is cardinal and measurable, the total utility is defined as the sum of the satisfaction that a person can receive from the consumption of all units of a specific product or service. Using the example above, if a person can only consume three rotis and the first roti consumed yields ten utils, the second roti consumed yields eight utils, and the third roti yields two utils, the total utility of rotis would be twenty utils.

The Definition of Marginal Utility
Marginal Utility is defined as the additional utility gained from the consumption of one an additional unit of a good or service or the additional use that a person has for an additional unit. let us use the same example if the economic utility of the first roti is ten utils and the utility of the second roti is eight utils, the MU of eating the second roti is eight utils. If the utility of a third roti is two utils, the MU of eating that third roti is two utils.

What is Demand in Economics

The demand for the commodity is consumers' desire to have it for which he is willing and able to pay. The Demand for the commodity is the amount of it that a consumer will purchase it at various given prices during a period of time. This time period may be day, week, month or year. The demand in economics implies both the desire to purchase and the ability to pay for the good. For example in a poor person who wants a car but he is unable to pay the amount required for the car then this will not be considered as the demand for the car as the demand is always deal with purchasing power.
Thus in economics, unless demand is backed by purchasing power or ability to pay it does not considered as the demand. Demand for the commodity is determined by the several factors such as price of a commodity, taste, and desire of the consumer for the commodity, income of the consumer, price of related or similar goods. When there is a change in any of these factors then there is a change in demand. 

Types of Demand

Consumer’s goods and Producers goods Demand
Consumer’s goods are goods used for final consumption e.g. food items, readymade clothes it is also known as direct demand. Demand for producer’s goods is derived demand, for these goods are demanded not for final consumption but for the production of other goods. E.g. steel is used for kitchens utensils, Consumer’s demand depends upon consumer income, producer’s goods demand depend upon demand of the final product.

Perishable and Durable goods Demand

Both consumer’s and producer’s goods are further divided into perishable goods and durable goods. Perishable goods are those, which can be consumed only once, while durable goods are those goods, which can be used more than once over a period. Bread, milk is perishable. Car, fridge is durable. Perishable goods demand is current demand depends on market conditions. Durable goods demands depend on replacement of old product and expansion of total stocks.

Derived and Autonomous Demands

When the demand for a product is tied to the purchase of some parent product, its demand is called derived. E.g., cement for the house. Autonomous is independent but such type good hard to find. All goods depend on other goods and degree of dependence varies e.g. battery tightly tied up with car sugar loosely with soft drinks. Thus, a distinction is more of a degree than of a kind.
Company and Industry Demands Company demands denote the demand for the products of a particular company while industry demand means the demand for the product of a particular industry .e.g. TISCO demand for steel is a company demand while all companies accumulated demand is known as industry demand. The important market structures are distinguished based on product differentiation and the number of sellers

1 comment:

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