Utility Function
The utility function is a way to assign a satisfaction level to each bundle of choices, either through an index (ordinal utility) or a numerical value (cardinal utility). In economics, this function is used to quantify the satisfaction derived from a consumer's choice, with each bundle of goods assigned a corresponding numerical value. Bundles with higher numbers provide greater utility to the consumer, while lower values indicate less satisfaction. If two different bundles have the same numerical value, they provide equal utility. The utility function (U) typically depends on two or more independent variables. In political economy, these variables represent the quantities of goods consumed by the individual.
U = U (x1, x2, ... , Xn)
For any two choice bundles, A and B, the utility function allows us to calculate a value for each - U(A) and U(B) - which can then be compared to see which bundle provides greater utility. The outcomes are as follows:
U(A) > U(B)
U(A) < U(B)
U(A) = U(B)
In the first case, bundle A offers greater utility than bundle B, so a rational consumer would choose A over B. In the second scenario, the opposite is true, with B providing higher utility. In the final case, both bundles deliver the same utility, leaving the consumer "indifferent" between the two options. This last scenario is also the basis for drawing indifference curves.
Utility functions are not limited to economics. They are also widely used in other fields, such as in the study of rational agents in artificial intelligence.
