The marginal utility of money: A modern Marshallian approach to consumer choice
AbstractWe reformulate neoclassical consumer choice by focusing on lamda, the marginal utility of money. As the opportunity cost of current expenditure, lamda is approximated by the slope of the indirect utility function of the continuation. We argue that lamda can largely supplant the role of an arbitrary budget constraint in partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive approach to consumer choice.
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Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 209.
Date of creation: 02 Aug 2011
Date of revision:
budget constraint; separability; value for money;
Other versions of this item:
- Friedman, Daniel & Sákovics, József, 2011. "The marginal utility of money: A modern Marshallian approach to consumer choice," SIRE Discussion Papers 2011-61, Scottish Institute for Research in Economics (SIRE).
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-CBA-2011-08-09 (Central Banking)
- NEP-MIC-2011-08-09 (Microeconomics)
- NEP-UPT-2011-08-09 (Utility Models & Prospect Theory)
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