Theory of Utility

The Theory of Utility explains how people make choices based on their preferences and the satisfaction they expect to gain from different options. It assumes individuals aim to maximize their happiness or benefit when choosing between alternatives. Each good or service provides a certain level of utility, and choices are made to get the highest overall satisfaction. This concept helps economists understand consumer behavior and how demand is influenced by changes in price or income, assuming that people act rationally to improve their well-being within their means.