Question

In your own words, what is utility? Can utility be measured? Can you measure your own utility? Can someone else measure your utility? Why or why not? Can social welfare be measured by “adding up” peoples’ utilities? Why or why not? If not by using utility, how can policy makers estimate the welfare of government policies?

Answer 1

The utility is a term that is widely used in the field of economics. It can be understood for measuring the amount of satisfaction or pleasure which is derived from the consumption of any goods and services. This term is widely used by the neoclassical economists who have dominated the modern theories of economics and they continue to dominate. The utility is widely understood as a function that is also used to understand the preference of the consumers. The utility function is an important one as indirectly affects the demand for the product and services.
Yes, utility function can be measured but it is not an easy task as the satisfaction received by a consumer is very difficult. The utility can be measured in utils which is the unit of utility. The utility is measured based on the consumer's preferred choice and this method is used by economists to measure utility. The utility is measured in two ways which are the cardinal and ordinal utility.

A person can measure their utility by estimating the magnitude of their preference for one product over the other. For eg: If a person derives 6000 utility units form a ford car and he derives 9000 units of utility from an Audi. In this way, a person can measure their utility based on estimating the satisfaction of one product over the other. This is the cardinal utility that is used by a person to measure its utility. So, yes a person can measure their utility.

Social welfare can be measured by adding up people's utilities but it will be measured in individualistic form and not as a whole. Social welfare function rates the social states based on more desirable, less desirable, and indifferent. In measuring social welfare the people utility can be used as an input and hence it can be measured by using people's utility but it will not reflect the choices as a society. For estimating the welfare of the government policies the social welfare function can be used for representing collective choice as alternative social states over the prospective pattern. This will help the government for making distribution of income at an optimum level.