Utility is the measure of satisfaction or the advantage a consumer obtains or expects to obtain from the consumption of a good. The utility of any product depends on the intensity of the want for the product concerned; in other words the greater the intensity of the want or need at any particular time, the greater, in the estimate of the consumer is the utility of the good or service which can satisfy this want; the smaller the intensity of the want for a particular product the lower will be its utility in the eyes of the consumer. In other words – the hungrier you are the greater will the person value a slice of bread; or the thirstier a person, the greater will the person value a glass of water.
Every consumer is able to compare the utility of one good or service with the utility of any other good or service because he knows the intensity of his need for different goods. The consumer can in other words, decide whether at any particular time the utility of one good is greater or smaller than or equal to the utility of any other good or service.
If this statement were not true, it would have to mean that no one would ever know whether at any particular time he wants to eat, drink, sleep or read. But the decisions and choices which are made in this respect every day show that t he consumer is fully capable to compare the utility of one type of consumption with another. Where the consumers seem to be undecided where for instance he doesn’t know whether tonight he would like to go to the movies or to visit friends, he is in the position where the utility of two actions is the same.
Although the consumer can compare the utility of different goods with each other, utility is a subjective concept. It is impossible therefore to find an objective yardstick with which to measure it, nor is it possible to compare utility between persons or to add utility between persons. Consumption has been defined as the use of consumers goods with a view to the satisfaction of wants. Each want is at any particular time felt with a certain intensity. It is clear that in the process of consumption the intensity of the want a consumer is satisfying will gradually decrease. For instance a person may at first be "very hungry" but while he is eating he will get less and less hungry until at last he is fully satisfied or satiated i.e. his want for food has disappeared or the intensity of his want has decreased to zero. In this way the point of satiety is reached and it is important to realise that any human want can be fully satisfied at a particular stage.
In the table below it is assumed that certain values can be alloted to utility. We will use these to explain the concept of diminishing utility.
How many slices of bread will the consumer consume. This will depend on the cost of each slice - but there will be no sense in consuming for example the 12th slice because he will be reducing his total utility (by feeling sick!).