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The Law of Demand versus Diminishing Marginal Utility

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  • Bruce R. Beattie
  • Jeffrey T. LaFrance

Abstract

Diminishing marginal utility (DMU) 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 DMU. The examples are accompanied with the geometry and basic mathematics of the utility functions and the implied ordinary/Marshallian demands.

Suggested Citation

  • Bruce R. Beattie & Jeffrey T. LaFrance, 2006. "The Law of Demand versus Diminishing Marginal Utility," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(2), pages 263-271.
    • Handle: RePEc:oup:revage:v:28:y:2006:i:2:p:263-271.
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    File URL: http://hdl.handle.net/10.1111/j.1467-9353.2006.00286.x
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    References listed on IDEAS

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    3. 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.
    4. LaFrance, Jeffrey T., 1985. "Linear demand functions in theory and practice," Journal of Economic Theory, Elsevier, vol. 37(1), pages 147-166, October.
    5. Burt, Oscar R & Brewer, Durward, 1971. "Estimation of Net Social Benefits from Outdoor Recreation," Econometrica, Econometric Society, vol. 39(5), pages 813-827, September.
    6. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    7. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
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    Cited by:

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    2. Arjan Ruijs, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Working Papers 2007.92, Fondazione Eni Enrico Mattei.
    3. 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.
    4. Ruijs, Arjan, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Natural Resources Management Working Papers 7441, Fondazione Eni Enrico Mattei (FEEM).

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