Ideally consumers seek to get maximum satisfaction from consumption of their preferred set of commodities. This guides them all through their consumption patterns hence purchase combination of commodities which they believe will result to higher utility. At all times consumers aim at reaching the optimal level of satisfaction and hence will keep on purchasing certain set of commodities so as to reach this plateau.
In most cases, consumers face problem of utility maximization while trying to land this plateau. The problem may be attributed to diminishing marginal satisfaction of various sets of commodities.Sometimes,consumption of additional units of a good or service may result in lower marginal satisfaction as compared to the units consumed earlier.This will result in a demand curve which will at first have a greater gradient and thereafter decreases.This is well illustrated in a demand curve by a coefficient where proportionate change in quantity demanded as a result of proportionate change in price is compared at different consumption levels.
The development of concept of utility maximization was contributed by many economists. The first prominent economist was Jeremy Bentham (1748-1832).He viewed utility as a moral criterion for the organization of a particular society. Jeremy argued that a society should aim at maximizing the total utility for the greatest number of individuals whose aim is to achieve the greatest happiness.
In his view, Jeremy argued that people with different levels will have different quantities of happiness if quantity of their wealth increases (Foley and Sidrauski). He further argued that greater quantities of wealth to a relatively less wealthy person will give rise to relatively higher levels of satisfaction as compared to a relatively wealthier person. Consequently therefore, the generation of happiness will go on diminishing as quantities of wealth increases.
Jules Duouit went on with the concept of diminishing marginal utility and he applied this concept to consumption of water. According to him, individuals have different value for water and would use first for purposes which are believed to give higher value such as drinking. Individuals will then use it for less valuable purposes like agriculture, washing etc. Jules uses this idea to generate consumption curves whereby he demonstrates how people purchase more of a certain commodity if its prices decrease. This is brought about by diminishing marginal utility. This is clearly described in the demand curve (Foley and Sidrauski).
The behavioral and assumption underlying utility maximization concept has attracted a lot of criticism. As a result of this, some economists have developed various models of bounded rationality. Others scientists have developed a number of theories related to human decision-making. These theories take into account other aspects of uncertainty and determination of people’s preferences tastes in relation to their socioeconomic environment. To begin with, a Cambridge economist Joan Robinolesson was against this concept of utility maximization. He boldly referred to it as a circular concept. He argued that it is the quality in goods and services that make consumer purchase them. Therefore, consumers have utility in these commodities since they will satisfy their needs (.
Other renowned economists like Marxists, Kantians believed that utility has relatively less importance and relevance as compared to other factors like religious doctrines, conscience and natural rights. However, it is still unclear whether any of these variables can be adequately represented in utility model system. Utility maximization theory was also criticized because of the fact that in both cardinal and ordinary utilities, it is impossible to empirically observe utility in real world.
One assumption in maximization of utility is that people have got the same tastes and preferences of commodities and therefore react similarily to change in prices.Another assumption is that a consumer is a rational person in the way he reacts accordingly to changes in prices of various commodities.This goes hand in hand with the assumption that consumers value consumption bundles in the same way.
The above assumptions are too simplistic because consumers have got different tastes and prefences of commodities they purchase.Therefore it would be too unrealistic to average all consumers on the basis of consumption patterns.People are different in so many ways and hence will tend to behave differently when it comes to purchase and consumption of various commodities.In addition some instances we have some abnormal consumption patterns whereby the cardinal demand curve become abnormal.This curve will move upwards to the right and in some other cases will slope downwards to the left but upto a certain point and thereafter slope upwards to the right.
The concept of utility maximization is valid according and much applicable according to my own opinion.This is because though there are some exceptions, it gives a clear reflection of the behaviour of a majority of consumers.It is true that the law of diminishing marginal utility is well demonstrated by a wide class of consumers.Though people have got varied tastes and preferences they tend to behave almost the same when it comes to consumption patterns.
The concept of utility maximization have a great impact in decision making processes.Consumers do purchase different commodities because they wolud like to get value for the money they spend on these commodities.Ideally, a rational consumer would seek to acquir greater value for their money and hence get greater satisfaction from relatively less money.In this regard consumers will shift their consumptions to those commodities which yield to relatively higher utility.
Despite the entire criticism surrounding utility maximization concept, it still remains the most reliable concept of explaining the various consumption patterns and behavior of people towards consumption of various commodities.
Works Cited
Foley, Duncan K., and Miguel Sidrauski. Monetary and Fiscal Policy in a Growing Economy. Macmillan Series in Economics. New York: Macmillan, 1971. Print.