What is Utility?

What Is Utility?

The concept of utility comes from economists’ efforts to understand why people make certain decisions—particularly decisions involving the consumption or use of goods and services. Utility is inherently subjective, meaning each individual determines the value or satisfaction they gain from something. Economists use the concept of utility to measure both the total and marginal benefits that goods and services provide in an economy.

How Is This Relevant to You?

If you want to make more rational choices, understanding utility can help you identify which options benefit you the most. This understanding supports the optimization of limited resources such as money, time, and effort.

What Is Optimization?

By allocating enough work hours to cover your expenses and lifestyle while still allowing time to socialize, you create a sense of balance. This balance is sometimes referred to as equilibrium. In this case, you have optimized both your work hours and your leisure time to arrive at the most satisfying overall choice.

Optimization means getting the most out of what you have—for example, choosing the best trade-off among a set of options. Consider a situation where you are deciding between going to the movies with friends or taking on additional hours at an hourly job. Working provides the opportunity to earn money, but you may value the enjoyment of spending time with friends more than the wages you would earn during those hours.

This leads to the broader concept of choice. Making a series of decisions that lead to the most logical, data-driven, and beneficial outcomes results in the most rational choices—those from which you gain the greatest utility.