October 21, 2017 

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RETURNS TO SCALE: Changes in production the occurs when all resources are proportionately increased in the long run. Returns to scale answers the question: If labor, capital, and ALL other inputs increase by 10%, does output increase by more than 10%, less than 10%, or exactly 10%? These answers indicate that returns to scale can take one of three forms: increasing returns to scale, decreasing returns to scale, and constant returns to scale.

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A philosophical view that the value or worth of an action depends on the amount of pleasure it generates or the amount of pain it prevents, or in economic terms, the amount of utility generated. Utilitarianism, although dating back to the early Greek philosophers, is largely attributable to the work of Jeremy Bentham and John Stuart Mill. This philosophy played a major role in the development of modern consumer demand theory and utility analysis.
Utilitarianism is a philosophy, formally developed in the late 1700s by Jeremy Bentham, based on the notion that an action is deemed good or bad, valuable or not, based on its consequences. In other words, an action has no intrinsic value, it is not intrinsically good or bad, but only valued based on how it affects the welfare of the people. The specific consequences used for this valuation is the utility generated.

Main Features

The primary features of utilitarianism are:
  • Consequences: The value of an action is based solely on its consequences--the pleasure generated or the pain avoided. There is no intrinsic nature of an action nor is the value based on the intentions of the actor. If telling a lie creates more pleasure than pain, then it is a good act. If telling the truth creates more pain than pleasure, then it is a "bad" act.

  • Utility: The consequence of an action depends on utility--the pleasure generated and the pain avoided. Early utilitarianism philosophers (especially Jeremy Bentham) worked under the presumption that utility was a quantifiable, measurable characteristic. A unit of pleasure was equal and opposite to a unit of pain. A unit of pleasure for one person was equal to a unit of pleasure for another.

  • Maximization: The motivation for an individual and for society is to maximize utility. For an individual, the best course of action is to consume goods and do the things that generate as much utility as possible. For society, the proper course of action is to implement policies that generate the greatest good for the greatest number.

The Golden Age

The primary proponents of utilitarianism were Jeremy Bentham, who did his work in the late 1700s, and John Stuart Mill, who worked in the mid 1800s. Although utilitarianism can trace its roots back to the ancient Greeks philosophers, Bentham and Mill enhanced and modified these existing views of utilitarianism. The philosophy blossomed at their hands.

Jeremy Bentham laid out the basic foundations of the utilitarian philosophy and coined the terms utility and utilitarianism. In particular, Bentham championed the idea that society should pursue actions that maximized the utility or welfare for all of society.

John Stuart Mill was trained in utilitarianism from an early age by his father James Mill, who just happened to be an extremely close friend of Bentham. The younger Mill picked up the mantle of utilitarianism from Bentham and was its primary advocate through much of the 1800s. He wrote Utilitarianism in 1861, what many considered the definitive statement of this view, and perhaps equally important, he integrated the notions of utility and utilitarianism into economic thinking through his work Principles of Political Economy, that was published in 1848 and which became the dominant economic textbook for decades.

An Economic Foundation

While the golden age of utilitarianism was the 1800s, it did not fade with the passing of John Stuart Mill. In fact, largely due to Mill's Principles of Political Economy, utilitarianism became an integral dimension of modern economic theory. It is an essential, albeit often unrecognized, foundation of consumer demand theory and utility analysis. The concepts of utility and the utility maximization assumption both reflect the utilitarianism view.

Utilitarianism is pervasive throughout the study economics.

  • Scarcity: Beginning with the fundamental notion of scarcity, utilitarianism can be seen in the presumption that human activity is concerned with using limited resources to satisfy wants and needs, a process which generates utility. Alleviating scarcity means increasing society's overall level of utility.

  • Equity: For many, the goal of equity not only means a fair and equal distribution of income and wealth, but also generating the greatest good for the greatest number. Implicit in the redistribution of income and wealth is the utilitarianism notion that every individual's utility contributes equally to society's welfare.

  • Profit Maximization: While the utilitarianism principle of utility maximization is an obvious part of consumer demand theory, an offshoot is the profit maximization principle that underlies the study of production and market supply.

Points of Debate

Like any philosophical view, utilitarianism has been critiqued and criticized. Three points of debate are particularly noteworthy:
  • Intrinsic Value: A primary point of contention is the utilitarianism presumption that the consequences of an action are the only measure of value. An alternative philosophical view is that some acts have intrinsic value, even though they might have adverse consequences. In other words, the act itself is worth doing. For example, always telling the truth is intrinsically good, even though it might cause more pain than pleasure.

  • Not Equal and Opposite: The utilitarianism view that pleasure and pain are equal but opposite is also subject to question. Some argue that pleasure is qualitatively different from pain. In other words, one "unit" of pleasure does not offset one "unit" of pain. For some, it is better to avoid pain than to generate pleasure.

  • Subjective Preferences: Utilitarianism is also criticized for the notion that all utility counts equally and thus utility can be compared among people. The counter argument is that each person is unique and there is no way to compare the pleasure and pain of one person with that of another.


Recommended Citation:

UTILITARIANISM, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2017. [Accessed: October 21, 2017].

Check Out These Related Terms...

     | utility measurement | util | cardinal utility | ordinal utility | diamond-water paradox | utility maximization |

Or For A Little Background...

     | utility | consumer demand theory | utility analysis | total utility | marginal utility | satisfaction | value | third rule of subjectivity | cause and effect |

And For Further Study...

     | marginal utility-price ratio | constrained utility maximization | consumer equilibrium | rule of consumer equilibrium | marginal utility and demand | law of diminishing marginal utility |

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