In economics, utility is a representation of preferences over some set of goods and services. Preferences have a utility representation so long as they are transitive, complete, and continuous.
Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. Individual utility and social utility can be construed as the value of a utility function and a social welfare function respectively. When coupled with production or commodity constraints, under some assumptions, these functions can be used to analyze Pareto efficiency, such as illustrated by Edgeworth boxes in contract curves. Such efficiency is a central concept in welfare economics.
In finance, utility is applied to generate an individual's price for an asset called the indifference price. Utility functions are also related to risk measures, with the most common example being the entropic risk measure.
Other articles related to "utility":
... Cambridge economist Joan Robinson famously criticized utility for being a circular concept "Utility is the quality in commodities that makes individuals want to buy them ... Another criticism comes from the assertion that neither cardinal nor ordinary utility is empirically observable in the real world ... In the case of cardinal utility it is impossible to measure the level of satisfaction "quantitatively" when someone consumes or purchases an apple ...
... Homology models can also be used to identify subtle differences between related proteins that have not all been solved structurally ... For example, the method was used to identify cation binding sites on the Na+/K+ ATPase and to propose hypotheses about different ATPases' binding affinity ...
... a former student of Friedman's, argued that some of the implications of the Friedman–Savage utility function were paradoxical ... His solution was to relate the curvature of an individual's utility function to increases in wealth ... involved determining an individual's "normal" level of income, controlling for utility gains from "recreational investments" (The psychological utility gained by the act of ...
Famous quotes containing the word utility:
“Moral sensibilities are nowadays at such cross-purposes that to one man a morality is proved by its utility, while to another its utility refutes it.”
—Friedrich Nietzsche (18441900)