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The Law of Demand Versus Diminishing Marginal Utility

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  • Beattie, Bruce R.
  • LaFrance, Jeffrey T.

Abstract

Diminishing marginal utility is neither necessary nor sufficient for downward sloping demand. Yet upper-division undergraduate and beginning graduate students often presume otherwise. This paper provides two simple counter examples that can be used to help students understand that the Law of Demand does not depend on diminishing marginal utility. The examples are accompanied with the geometry and basic mathematics of the utility functions and the implied ordinary/Marshallian demands.

Suggested Citation

  • Beattie, Bruce R. & LaFrance, Jeffrey T., 2005. "The Law of Demand Versus Diminishing Marginal Utility," CUDARE Working Papers 25013, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:25013
    DOI: 10.22004/ag.econ.25013
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    References listed on IDEAS

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    1. Jeffrey T. LaFrance & Harry de Gorter, 1985. "Regulation in a Dynamic Market: The U.S. Dairy Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(4), pages 821-832.
    2. von Haefen, Roger H., 2002. "A Complete Characterization Of The Linear, Log-Linear, And Semi-Log Incomplete Demand System Models," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(2), pages 1-39, December.
    3. Cicchetti, Charles J & Fisher, Anthony C & Smith, V Kerry, 1976. "An Econometric Evaluation of a Generalized Consumer Surplus Measure: The Mineral King Controversy," Econometrica, Econometric Society, vol. 44(6), pages 1259-1276, November.
    4. Burt, Oscar R & Brewer, Durward, 1971. "Estimation of Net Social Benefits from Outdoor Recreation," Econometrica, Econometric Society, vol. 39(5), pages 813-827, September.
    5. LaFrance, Jeffrey T., 1985. "Linear demand functions in theory and practice," Journal of Economic Theory, Elsevier, vol. 37(1), pages 147-166, October.
    6. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
    7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
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    Cited by:

    1. Arjan Ruijs, 2009. "Welfare and Distribution Effects of Water Pricing Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 161-182, June.
    2. František Zapletal, 2022. "Revised PROMETHEE algorithm with reference values," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 30(2), pages 521-545, June.
    3. Ruijs, Arjan, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Natural Resources Management Working Papers 7441, Fondazione Eni Enrico Mattei (FEEM).
    4. Arjan Ruijs, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Working Papers 2007.92, Fondazione Eni Enrico Mattei.

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    Demand and Price Analysis;

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