The law of demand versus diminishing marginal utility
Diminishing marginal utility (DMU) is neither necessary nor sufficient for downward-sloping demand. Yet, upper-division undergraduate and beginning graduate students often presumeotherwise. 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 accompaniedwith the geometry and basic mathematics of the utility functions and the implied ordinary/Marshallian demands.
|Date of creation:||01 Jul 2006|
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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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Monash Economics Working Papers
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