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In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. In a normative context, utility refers to a goal or objective that we wish to maximize, i.e., an objective function.
There remain economists who believe that utility, if it cannot be measured, at least can be approximated somewhat to provide some form of measurement, similar to how prices, which have no uniform unit to provide an actual price level, could still be indexed to provide an "inflation rate" (which is actually a level of change in the prices of ...
With ordinal utility, a person's preferences do not have a unique marginal utility, making the concept of diminishing marginal utility irrelevant. On the other hand, diminishing marginal utility is a significant concept in cardinal utility , which is used to analyse intertemporal choice , choice under uncertainty , and social welfare in modern ...
The structure of prices has little to do with the so-called "material" sphere of production and consumption. The quantification of power in prices is not the consequence of external laws—whether natural or historical—but entirely internal to society. In capitalism, power is the governing principle as rooted in the centrality of private ...
A fixed-price value measure is used to measure changes in quality and quantity. True to its name, prices are kept fixed for a minimum of two measuring situations. For this reason, it is possible to define the changes in quality and quantity of a most varied and wide range of commodities, keeping apart the changes in income distribution.
In economics, a utility representation theorem shows that, under certain conditions, a preference ordering can be represented by a real-valued utility function, such that option A is preferred to option B if and only if the utility of A is larger than that of B.
The adjustment of prices in markets towards equilibrium (where supply and demand equal) gives them greater utilitarian significance. The activities of entrepreneurs make prices more accurate in terms of how they represent the marginal utility of consumers. Prices act as guides to the planning of production.
Cost–utility analysis (CUA) is a form of economic analysis used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics , especially health technology assessment (HTA).