Definition
Utility is the measure of satisfaction or value a consumer derives from consuming a good or service. It can apply to both absolute and relative goods.
Why It Matters
Utility is central to understanding consumer behavior, demand, and the allocation of resources. It helps economists predict how people make trade-offs between different goods and services.
Example
A glass of water provides high utility to a thirsty person (absolute good) while a designer handbag may provide utility based on social perception or context (relative good). Both illustrate how utility guides choices.