Utility

Economists use utility as a way to describe how much people value different things. People are assumed to make choices that give them the most utility possible, given their limited money and time.

Utility is personal. A concert ticket may give great utility to a music fan and very little to someone who dislikes that kind of music. Utility cannot be measured directly in the way that weight or distance can, but it can be inferred from the choices people make and what they are willing to pay.

For example, if a person chooses to spend 20 on a meal out rather than 20 on a new book, economists infer that the meal gives them more utility at that moment.

Utility helps explain why demand curves slope downwards. As people consume more of something, each additional unit usually adds less satisfaction, so they are only willing to buy more if the price falls. It also helps explain how people divide their spending among many different goods to get the greatest overall satisfaction.