Utility Theory is a concept in economics that helps explain how individuals make choices based on their preferences and the satisfaction they expect to gain from different options. It assumes that people aim to maximize their overall happiness or "utility" when faced with decisions, whether it's choosing between products, investments, or other alternatives. The theory uses a mathematical framework to quantify utility, allowing economists to analyze consumer behavior and market dynamics. Key components include the idea of diminishing marginal utility, which suggests that as a person consumes more of a good, the additional satisfaction gained from each extra unit decreases.