Abstract
Utility is the degree of satisfaction one gains from the consumption of goods. In this respect, two laws are important: Gossen’s first law or the law of decreasing marginal utility, and Gossen’s second law, which says that utility is at a maximum if marginal utility per monetary unit in all directions has been equalized.1
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H.H. Gossen, 1889 (1853). Entwickelung der Gesetze des menschlichen Verkehrs, und der daraus flieβenden Regeln für menschliches Handeln. Prager, Berlin. Gossen’s idea concerning decreasing marginal utility fits into the cardinal concept of utility. In the ordinal utility concept, the law of decreasing marginal utility must be transformed into the law of decreasing marginal rate of substitution.
An iso-utility curve is a curve showing combinations of goods which represent the same utility.
E. Engel, 1857. Die Productions und Consumptionsverhaeltnisse des Koenigreichs Sachsen.
Of course, the demand functions are not necessarily linear in every case.
This implies that a rising demand is connected with a rising price, which rarely occurs. Though the name of Robert Giffen (1837–1910) is connected to this term, it is not sure whether he ever mentioned it. Marshall started the tradition of calling these types of goods Giffen goods in his Principles 1920 (1890).
A. Marshall, 1920 (1890). Principles of economics. MacMillan, London.
E.S. Mills, 1978. The economics of environmental quality. Norton, New York. J.J. Krabbe and W.J.M. Heijman, 1986. Economische theorie van het milieu. Van Gorcum, Assen.
K.J. Lancaster, 1966. A new approach to consumer theory. Journal of Political Economy, 74, pp. 132–157; J.J. Krabbe and W.J.M. Heijman, 1986. Economische theorie van het milieu. Van Gorcum, Assen.
W.J.M. Heijman, Austrian sustainability. In: G. Meijer (ed.), 1995. New perspectives on Austrian Economics. Routledge, London. E. von Böhm-Bawerk, 1921 (1889). Kapital und Kapitalzins II, 1: Positive Theorie des Kapitales, 4th edition, Fischer, Jena.
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Heijman, W.J.M. (1998). Theory of Consumption. In: The Economic Metabolism. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-5038-5_1
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DOI: https://doi.org/10.1007/978-94-011-5038-5_1
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