Utilities Are: Definition, Functions, Types, and Examples

Utility is a term in economics that is closely related to consumer satisfaction. Broadly speaking, utility means the benefits, functions, or uses of a product for its users.

Therefore, utility is positively correlated with user satisfaction. However, product benefits vary. Confused, right? See further explanation in the following article!

Definition of Utilities

Before continuing, you may have been to a restaurant and ordered food that you like. What do you feel right now? Must be happy, right? 

A few days later, you come back to the same restaurant and order the same food. Is your experience similar? Probably not. These are the so-called utilities.

Utility is a feeling of satisfaction or customer satisfaction after consuming goods or services. The higher the customer's desire to own the item, the more utility is obtained from it. This utility is more instinctive in nature, with different customers able to derive different levels of utility from the same good.

Utility Functions

Simply put, the function of utility is to measure how much benefit or satisfaction is experienced by customers when they use an item or service. From these measurements, customers can provide an assessment of the product and their various experiences with it.

Therefore, a high utility value indicates that the value of consumer satisfaction with a product is high. Thus, the value owned by the company also increases, and vice versa.

Types of Utilities

Basically, utilities fall into three types, including, but not limited to:

1. Total Utility

Is the total number of consumer satisfaction with the product. The more people who consume it, the bigger the total.

Total Utilities (UT) = U1 + U2 + U3 +... + Un.

2. Marginal Utility

is the additional satisfaction obtained from each greater unit of consumption. However, this utility will decrease with each increase in the consumption unit of the product.

Marginal utility (UM) is the change in UT divided by the change in total amount, or UT/Q.

3. Average Utility

Represents consumers obtained by dividing the total number of units by the total units of consumption. For example, if there are n total units, then:

Average utility (UR) is equal to UT/number of units or UT/n.

In addition, in economics, there are types of utilities such as:

• Form i.e. refers to the product of a particular company.
• Place refers to the convenience and readiness of services available to customers in a place.
• Time refers to the ease of availability of goods or services to meet customer needs when needed.
• Benefits that will be obtained by consumers as product owners are referred to as ownership.

Utility Example

The following examples of utility will help you understand the concept of utility theory in economics.

For example, let's say you're planning to buy a motorcycle and you're considering two options. The two motorbikes have almost the same design and features, but the first motorbike has better safety features. As a result, the price of the first motorbike will decrease by 10 million rupiah.

Even though the price differs by only IDR 10 million, you have already received the benefits of buying a second motorbike. The customer believes that choosing a second motorbike will reduce the risk of an accident.

This is an explanation of the definition of utility and its relationship to economic theory. Utility, basically, is the benefits, uses, or satisfaction that users feel about a product or service. Hopefully this information is useful for you.