In Economics, utility is an abstract concept that explains how consumers (both individuals and markets) hope to get the maximum satisfaction when dealing with scarcity of goods and services. In other words, utility is the amount of satisfaction a person gets when they consume a certain amount of goods. The more a person consumes, the more their utility will be.
There are two types of utilities- total utility and marginal utility. Total utility increases when a product or a service is consumed more, so it is a permanently upward sloping curve. On the other hand, marginal utility describes how much satisfaction is derived from each additional unit of a product or service consumed. Marginal utility decreases along with the units, so this is a slope that steeps up at first, but starts falling after (as described in the law of diminishing marginal utility).
For instance, let us say you love ice cream. So, when you have one ice cream, the satisfaction you have achieved is high (let us say 70%). This means both marginal and total utility will be 70%. Now, if you eat another cup, you would be satisfied, but since your craving has been fulfilled, you would not enjoy it that much (let’s say you only enjoy it 10%). This means that the marginal utility of the second cup is only 10%, whereas the total utility will be 80.
The theory of utility helps determine demand, and indirectly, the pricing of commodities, as well.
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