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.
|Date of creation:||01 Sep 2005|
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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.
- 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 1259-76, November.
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- Jeffrey T. LaFrance & Harry D. Gorter, 1985.
"Regulation in a Dynamic Market: The U.S. Dairy Industry,"
Monash Economics Working Papers
archive-34, Monash University, Department of Economics.
- 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.
- 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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