Lesson: Consumption Choices

Measuring Utility with Numbers

Measuring Utility with Numbers

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  • Remember that utility is not something that can be readily seen or measured. Economists, though, look at trends in purchasing goods and services to help companies decide what to produce and how much to charge.
  • Only the consumer will truly know if the utility reflects what they prefer.

This discussion of utility began with an assumption that it is possible to place numerical values on utility, an assumption that may seem questionable. You can buy a thermometer for measuring the temperature at the hardware store, but what store sells an “utilimometer” for measuring utility? While measuring utility with numbers is a convenient assumption to clarify the explanation, the key assumption is not that an outside party can measure utility but only that individuals can decide which of two alternatives they prefer. 

To understand this point, think back to the step-by-step process of finding the choice with the highest total utility by comparing the marginal utility you gain and lose from different choices along the budget constraint. As José compares each choice along his budget constraint to the previous choice, what matters is not the specific numbers that he places on his utility—or whether he uses any numbers at all—but only that he personally can identify which choices he prefers. 

In this way, the step-by-step process of choosing the highest level of utility resembles rather closely how many people make consumption decisions. We think about what will make us the happiest. We think about what things cost. We think about buying a little more of one item and giving up a little of something else. We choose what provides us with the greatest level of satisfaction. The vocabulary of comparing the points along a budget constraint and total and marginal utility is just a set of tools for discussing this everyday process in a clear and specific manner. It is welcome news that specific utility numbers are not central to the argument since a good utilimometer is hard to find. Do not worry—while we cannot measure utils, by the end of the next lesson, we will have transformed our analysis into something we can measure—demand.