According to economics every when attempts to make a purchase decision, he or she always want to greatest value possible from his expenditure of least amount of money. His or her one and only objective is to maximize the value which is derived from the available money. So in the language of economics, we called it maximum aggregate utility.
Economics studies how our society uses such resources which have lots of alternative uses. For example, wood can be used for multiple purposes, primarily building and fuel.
In a market, less quantity resources always go to the consumers that buy highest prices for them. Classical economist came up with the best approach for the purpose of allocation of the society is a maximized aggregate utility.
What is maximized Aggregate Utility?
Basically, it is the total utility which is gained by the society from making a certain economic choice. For example, maybe a society have set a specific age at which an individual is able to collect his retirement benefits.
Some individuals will get benefit from this choice, adding to their utility while on the other hand, some this may be impacted negatively on other individuals, reducing their utility.
So in this way maximized aggregate utility is used as a choice for the society because it is best for the social gains and impact positively on each individual.
When is Aggregate Utility maximized?
There are lots of economic theories regarding consumer activities and each one suggests that the main goal of a consumer is to achieve maximum utility for least amount of money.
This is due to limited amount of funds an individual possesses and also a wish to achieve maximum satisfaction from the consumption of services or goods. Consumer’s incomes are low and they are assumed to be rational so they will try to get maximum utility from available money.
For example, if there are two purchasing option available to the consumer with same financial cost, and both have services the same functions, the consumer will buy such service or good which will provide him maximum utility for the money.
Maximized Aggregate Utility and Social Satisfaction
Using this approach, there are lots of classical economists who argue that for maximizing social satisfaction, equal distribution of wealth is very important.
In this way, there is no loss of utility to the person who loses some wealth because due to equal distribution of wealth they will get a share of social wealth. So there will be more social satisfaction even a person lose some wealth.
By using maximum aggregate utility we can achieve the maximum utility from the consumption of goods or services. The main goal of maximum aggregate utility is to achieve the maximum utility and due to this reason, it is the key assumption for underlying consumer behavior and more social satisfaction.
Consumers always make choices when they are going to buy anything because they want to get the maximum level of satisfaction and it helps them a lot.
The maximized aggregate utility is also called guiding notion because it underlay the consumer choices which are analyzed with utility analysis and consumer demand theory.
- Globalie Blog Team