The marginal utility of money: A modern Marshallian approach to consumer choice
AbstractWe reformulate neoclassical consumer choice by focusing on lambda, the marginal utility of money. As the opportunity cost of current expenditure, lambda is approximated by the slope of the indirect utility function of the continuation. We argue that lambda 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 Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2011-61.
Date of creation: 2011
Date of revision:
budget constraint; separability; value for money;
Other versions of this item:
- József Sákovics and Daniel Friedman (University of California at Santa Cruz), 2011. "The marginal utility of money: A modern Marshallian approach to consumer choice," ESE Discussion Papers 209, Edinburgh School of Economics, University of Edinburgh.
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-MIC-2012-08-23 (Microeconomics)
- NEP-UPT-2012-08-23 (Utility Models & Prospect Theory)
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