Economic Utility


Economic Utility and its Features

We know that utility is related to satisfaction. Economic utility refers to a good or service's ability to satisfy consumers' needs or wants. As goods and services have different amounts of need, the economic utility of goods and services differ from one another.

  • The economic utility is directly related to market demand. The goods that have higher economic utility are demanded more by consumers, while a good that has low economic utility will be asked for less by consumers.

    As the economic utility is dependent on consumer demand, some goods may not have any economic utility when there is no demand for a particular good in the market. Consumers are free to decide on goods and services they need and when they do not need something, the economic utility of that product is zero.

  • It must be noted that economic utility is a relative measure. It depends on the needs of the consumer completely. So, the economic utility of a product may be assigned depending on the particular needs of the consumer.

  • Economic utility keeps changing for individuals and may be different for even the same product. The theory of marginal utility states that utility goes on decreasing with each additional consumption holds good for economic utility as well.

  • The effect of substitution which relates substitution of goods with changing consumer choices is applicable to economic utility too.

Examples of Economic Utility

Let’s take the example of Apple, the world’s best mobile manufacturing company. It is a company based in the US. However, assembling the parts or having manufacturing facilities in China, increases its profitability and increases its economic utility in Asia as well.

For the same company, having its stores across the globe helps it amass the number of its consumers. If it had its stores only in the US, consumers in other parts of the globe would have hesitated to buy such expensive mobile phones. Apple solves this crisis by having stores in almost all parts of the globe. This is an example of increasing economic utility as well.

Main Types of Economic Utility

There are basically four main types of economic utility, which are the following:


Place utility refers to the process of making a good more readily available by letting them have availability in various places so that consumers can access them without any hardship. This can be done either by opening stores in more locations or making products online.

For example, Levi’s jeans sell its products all over the world. Although the brand is renowned among buyers, the buyers won’t purchase the products if there is no store in their location. Levi’s solves this issue by opening more stores in various locations and selling the jeans online.


Form utility refers to the process of utility obtained by service and p[roduct design. By offering a better design and increasing services, firms may increase the perceived value or economic utility of a good or service. This can be done by taking feedback from the customers or surveying customer choices.

For example, Urban Company offers household painting and restoration services to its customers in India. It offers house cleaning and painting services. It is a standard measure for the company to ask for the design and required choice from customers before offering the services. Therefore, Urban Company creates more perceived value by taking consumer choices feedback before offering the services.


Possession is an economic utility that refers to the value of satisfaction a consumer derives by possessing or owning a good or service. To increase possession utility, companies strive to make the acquisition process simpler. Some companies also offer multipurpose products which increase the perceived value of the product in the minds of the consumers.

For example, many real estate companies offer houses on lease to potential customers. In such contracts, customers don’t have to buy the houses to start staying in them. They just have to make a monthly payment. This reduces a lot of burden on the customers’ shoulders, and therefore, an increasing number of customers choose to avail the option of leased houses from the real estate company. The customers also have the option to buy the houses once their leasing contract ends.


Time utility refers to modifying the time a company takes to make the goods readily available. Time is an important factor for consumers because lateness may reduce the perceived utility of goods. Companies usually try to take the minimum amount of time to make products available for the consumers. A lot of factors, such as storage availability, delivery times, logistics, and supply chain are related directly to the time utility.

For example, online sellers usually take seven to ten business days to ship a product to customers of a certain location. A particular company takes feedback from customers and finds that there is a need to make products available faster. So, they revamp the storage facilities near the location and start to decrease delivery time by recruiting more delivery professionals.


Economic utility is a very important topic in marketing because it is directly related to consumer choice and demand. Companies must pay attention to economic utility to tap the untapped market resources and profit reasonably. Organizations that do not pay attention to economic utility, end up making fewer sales than the organizations that use it in their favor.

Moreover, the companies should identify from the four types of economic utilities which one should be their focal point. By addressing the economic utility that is untouched, companies can increase their profitability and revenues.


Qns 1. What are some ways to increase the economic utility?

Ans. Companies can take various measures to learn and increase the economic utility of a product. Feedback collection, surveys, site visits, and interviews are some of them.

Qns 2. Is economic utility related to consumer choice?

Ans. Yes. Consumer choice is made depending upon the economic utility of a product. In fact, consumers make their choices depending on the value a good or service will provide to them. If there is no economic utility of a product, it won’t have any market demand.

Qns 3. How do companies use economic utility?

Ans. Companies study the behaviors of the consumers in a given market and decide how their products can offer value to address the needs of the consumers. This helps them understand consumer choice and market demand which can be used while manufacturing the products, selling them, and earning increased revenues.

Qns 4. Are economic utility and usefulness the same thing?

Ans. No. Sometimes, a good with enough economic utility may not be useful. The vice versa is true too. For example, health drinks may not have any economic utility even if they are useful.

Updated on 13-Oct-2022 11:19:47