Question
In: Economics
explain in detail Utility Theory and its role in consumer choice and public decision making.
explain in detail Utility Theory and its role in consumer choice and public decision making.
Solutions
Expert Solution
Utility Theory
This is indeed an ecnomic concept which finds impossible to
measure the actual utility that is offered from a good or a service
and it makes it possible to rank all the available alternatives
according to the will of the customer. Since, the choice depends a
lot onthe income of the consumer and price, we have to observe that
a rational consumer will not get to spend additional units of a
service or a good until the marginal utility equal to or greater
than that of a unit of service orthe good. This indicates that the
actual price of the good is dependent on marginal utility and with
that, the consumer ranks his preferences accordingly. In this way
marginal utility justifies consumer choice. Utility theory also
gets to provide the satisfaction measure of decision maker where it
actually assumes that the decisions are made on utility
maximisation principle which tells us that thethe best choice is
the one that provides the highest utility to the decision maker and
in this way, it is related to public decision making.
Rahul Sunny answered 2 years agoRelated Solutions
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