Utility

Posted in Finance, Accounting and Economics Terms, Total Reads: 936
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Definition: Utility

The satisfaction derived  from the consumption of a goods or services  at the discrete instances. Since it is difficult to quantify utility several theories have been propagated. The marginal utility concept is the reasoning behind all these theories.

There are two approaches to marginal utility theories

  • Decremental  marginal utility theory which states  that with the  additional utility derived on every unit consumed  decreases as the number of units consumed  decreases.
  • Incremental marginal utility  states  that the per unit utility derived  increases as we move from  smaller number of units to a higher number of units .

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