Question

Define or explain the following concepts:

1. Possession utility

2. Knowledge utility

3. Total utility

4. Marginal utility

Answer 1

1) Possession utility refers to the utility derived from the possession or ownership of a good. In other words, it refers to the utility obtained by the consumers by purchasing a good from the seller.

2) Knowledge utility is the utility derived from acquiring knowledge about a particular product. For instance, the utility derived from a mobile increases, if the consumer has complete knowledge about its functions.

3) Total utility refers to the aggregate utility, or the summation of utility, derived from the consumption of all the units of a commodity i.e. total utility is the sum of marginal utility. Algebraically,

TU_n = MU₁ + MU₂ + MU₃ +..............+ MU_n = ∑MU

4) Marginal utility refers to the addition to the total utility, due to the consumption of an additional unit of a commodity. MU is derived from TU as:
MU_n = TU_n − TU_{n − 1}