The law of demand versus diminishing marginal utility
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 mathematicsof the utility functions and the implied ordinary/Marshallian demands.
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- LaFrance, Jeffrey T., 1985. "Linear demand functions in theory and practice," Journal of Economic Theory, Elsevier, vol. 37(1), pages 147-166, October.
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Monash Economics Working Papers
archive-34, Monash University, Department of Economics.
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- Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
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