Marginal Utility Of Money Research Articles

Comment on professor Timberlake's squared rule for the equilibrium value for the marginal utility of money

Comment on professor Timberlake's squared rule for the equilibrium value for the marginal utility of money

THE ECONOMICS OF THE NATIONAL TRUST: A DEMAND CURVE FOR A HISTORY CLUB

The traditional problem of demand is examined from the perspective of club membership. This comes in discrete amounts and cannot be handled by the standard approach that assumes that the quantity bought is infinitely adjustable. The analysis develops a modified utility function approach. In time series and cross section analyses, education, price, income, mobility, age, and the number of properties the trust has are significant determinants of membership, as is a membership drive since 1970. A by-product of the time-series analysis is an estimate of the marginal utility of money, which in general has been increasing since 1950. Copyright 1989 by Scottish Economic Society.

Economic Equality: Rawls versus Utilitarianism

Perhaps the most salient feature of Rawls's theory of justice (Rawls, 1971) which at once attracts supporters and repels critics is its apparent egalitarian conclusion as to how economic goods are to be distributed. Indeed, many of Rawls's sympathizers may find this result intuitively appealing, and regard it as Rawls's enduring contribution to the topic of economic justice, despite technical deficiencies in Rawls's contractarian, decision-theoretic argument for it (see, e.g., Nagel, 1973, p. 234) which occupy the bulk of the critical literature. Rawls himself, having proposed a “coherence” theory of justification in metaethics, must regard the claim that his distributive criterion “is a strongly egalitarian conception” (Rawls, 1971, p. 76) as independently a part of the overarching moral argument. The alleged egalitarian impact of Rawls's theory is crucial again in normative ethics where Rawls is thought to have developed a major counter-theory to utilitarianism (cf. Braybrooke, 1975, p. 304), one of the most popular criticisms of which has been its alleged inadequacy in handling questions of distributive justice. Utilitarians can argue, however, as Brandt recently has, that the diminishing marginal utility of money, along with ignorance of income-welfare curves, would require a utility-maximizing distribution to be substantially egalitarian (Brandt, 1979, pp. 311f., 315f.; cf. Brandt, 1983, p. 102f.). The challenge is therefore for Rawls to show that his theory yields an ethically preferable degree of equality.

A Modern Analysis of Giffen's Paradox

Concern over the possibility of an upward sloping demand curve started with Marshall, who credited Robert Giffen, an English statistician, with having first observed that more of a commodity may be consumed when its rises.' Nearly 100 years after Marshall published his remarks, the received analysis of a Giffen good is almost entirely contained in the assertion that in the Slutsky equation for the own price effects on consumption of the good, the income term may be sufficiently large to outweigh the negative pure substitution term. Even the elementary question of the impact of this large income effect on the consumption of other commodities seems to have been overlooked.2 In the standard two-good (x1 and x2) world, for example, if x1 is a Giffen good, i.e., if Ox1/lp, > 0, then from the budget constraint, p1OX1/P1 +p2aX2/p1= x1 and thus ax2/ap1 O. To satisfy the budget constraint, the large negative income term for x1 must produce a large positive income effect for x2 that outweighs the net substitution term in the Slutsky equation for the effects of changes in Pi on x2. When the of the Giffen good changes, therefore, not only does the income term outweigh the substitution term for the Giffen good, but a similar result is produced for the cross effect on the other commodity. This simple result seems to have gone unnoticed. Many economists have studied the Giffen paradox but a satisfactory analysis appears to be lacking. Marshall believed that the marginal utility of money, i, must rise with an increase in the of the Giffen good. George Stigler asserted [1950, p. 327], that the Giffen case is inconsistent with an additively separable utility function.3 William Gramm [1970] also examined the paradox, but his interpretation was not intended to add to knowledge about the economics of the

Measuring Economic Welfare: New Methods.

Preface 1. An introduction to the money-metric 2. The marginal utility of money as an integrating factor 3. Calculation of the money-metric 4. The approach of Dupuit and Marshall 5. The Hicksian approach 6. Approximations based on consumer surplus 7. A reconsideration of the theory of index numbers 8. The money-metric as a basis for calculation of social welfare functions 9. Measurement of the social costs of monopoly 10. A final comment and conclusion References Index.

On the Equivalence of Consumer Surplus and Von Thunian Rent

The surplus value arising from the use of transport facHiities is the most pertinent measure of social welfare for many spatial economic problems. Its equivalence to the fundamental variable of location theory, rent, is demonstrated. This is done in the most general context using TIicks' construction which involves no restrictive assumption on the value of money. The equality is also shown to hold for the special case of constant marginal utility of money, when surplus can be measured as the area under the demand curve for transport. This coincides with the conditions represented by von Thuinen's theory of land value.

The permanent income hypothesis: A theoretical formulation

Abstract : This paper defends the view that in dealing with a consumer's reponse to short-term changes, it is reasonable to assume that the marginal utility of money is constant. A theoretical defense of this view is made in terms of the consumer's intertemporal maximization problem. It is assumed that the consumer may hold money, but may not borrow. The consumer's utility function is assumed to be additively separable with respect to time. Prices, the consumer's income, and his utility function for each period are assumed to fluctuate according to a stationary stochastic process. It is proved that if the time horizon of the consumer's problem is sufficiently distant, if his discount rate for future utility is sufficiently small, and if he has a sufficient quantity of money, then the marginal utility of money is nearly independent of current prices and income and is nearly constant over time. The proof of these facts is based on economic common sense and the strong law of large numbers for stationary processes. (Author)

The Marshallian Consumer

Ever since the publication of Principles (Marshall, 1890), the Marshallian assumption that the marginal utility of money is constant has been the source of many debates and confusions. Consequently, the Marshallian demand function has been interpreted in different ways by different authors. Some of the exponents of the Marshallian demand theory (e.g. Samuelson, 1942; Green, 1971) assume a Paretian framework, in which the consumer shops for the day with a predetermined expenditure level. They derive the form of the utility function that is consistent with the assumption that the marginal utility of mone'y (expenditure) is invariant with respect to the prices the consumer has to pay. This is essentially a Paretian exercise, the origin of

Excess Burden and the Voluntary Theory of Public Finance: The Case of Intermediate Public Goods

IJohnson and Pauly (1969) correctly pointed out that the condition for the optimal supply of public goods derived by Samuelson (1954) is based on the assumption that public goods are financed by efficient lump-sum taxes. They derived an optimal (i.e. second-best) condition for the supply of public goods in the presence of distortions due to nonlump-sum taxes, such as an excise tax. Like Samuelson they confined their analysis to public goods which are final products and therefore considered the voluntary theory of public finance which assumes that the basic decision-making unit is the individual consumer-votertaxpayer. Assuming that consumers take into consideration not only the monetary cost of the supply of public goods but also the welfare costs due to inefficient taxes, they showed that a smaller quantity of public goods is supplied under an inefficient tax than the optimal quantity supplied under an efficient tax, the marginal utility of money being assumed constant. The aim of this note is to extend their argument to the case of public goods which are intermediate goods, and to show that there are cases where pressures from industry on government cause an under-supply of public goods even when the financing is done by an earmarked lumpsum tax on the industry. In spite of Galbraith (1958) an under-supply of public goods has been thought to be the least likely result for intermediate public goods, since industries have more influence on governments than do consumers (see for example Downs, 1957, pp. 255-259).

Consumer Surplus as an Index of User Benefit from Public Expenditure

ABSTRACT Consider a proposed government project which would change the price (s) of one or more commodities. If the project were undertaken and a given consumer were assessed an associated fixed charge, K, his resulting utility change, Δu > 0 if and only if ΔM − K > 0, where ΔM, his consumer surplus for this project, is procured from basic ideas in microeconomic theory. It is shown, however, that given a set of mutually exclusive such projects, each with its own ΔM − K, the consumer cannot ordinarily use that index for project ranking unless his marginal utility of money, μ, is a constant, which is thereafter assumed. ΔM is illustrated as a measure of highway project user benefit and contrasted with other such measures proposed in the highway literature. It is further shown that the project index, Σ[ ΔM − K], an aggregate over individuals, may be used for government selection of projects enabling the reaching of the highest achievable level of social welfare. This result is then extended to allow discount...

Vertically Parallel Indifference Curves with a Non-Constant Marginal Utility of Money

Vertically Parallel Indifference Curves with a Non-Constant Marginal Utility of Money

Evaluation of Indian Fertilizer Projects: An Application of Consumer's and Producer's Surplus

The concept of consumer's and producer's surplus, though much criticized, provides a better idea about the welfare aspects of planning than other goals which have been proposed, especially in selection of projects under development planning. If we assume the measurability of utility and the similarity of individuals with respect to the marginal utility of money, the effects of a shift parameter on consumers' and producers' gains can be estimated by means of shifts in the relevant demand and supply functions. Comparison of the gains with the cost of the shift parameter (a project) provides a good guide for economic policy. Though Oriental culture is different from Western culture, granting the rationality of an individual in his own traditions does not seriously damage the applicability of the theory to an Oriental country. An attempt is made to estimate the effects of the use of ferilizer on surpluses in Indian agriculture.

A Study of Management Behavior by Use of Competitive Business Games

A general model has been developed for a class of business games to represent the activities of individual firms in a hypothetical oligopolistic industry. Although hypothetical, the games allow the players to transfer mentally to the real business world. The players who act as competitors build and operate their individual plants with specified technology to produce a single homogeneous product. The product is sold competitively to households, and labor supplied by the households is employed in the industry through competitive bidding of the competitors. Thus, there are two competitive markets established, with the firms competing for a limited supply of labor on the one hand, and competing for a limited sales fund on the other hand. Managerial decisions for each firm include labor employment offerings and wage rate, product sales offerings and product prices, production and inventory, plant expansion, money borrowing, sales credit, and dividends paid to stockholders. In some cases there is a market for “efficiency units” used to improve technology. The competitors may select wage rates and product prices freely, since there are no internal relationships in the model. Aggressive competition for labor results in increasing wage rates and aggressive competition for the sales fund results in low product profit. Various regulations are introduced concerning monopoly, taxation, credit, and bankruptcy. The general results of this study show that managerial behavior in an oligopoly exhibits varying strength of agressive competition producing the usual business cycle, and further that competitors will act to “stabilize” the industry by self-regulation of speculative activities. An examination of the technological input to these business games shows that competitors will invest funds to improve efficiency only when their marginal utility of money is well below that represented by the fixed interest rate.

Can We Measure the Marginal Utility of Money?

Can We Measure the Marginal Utility of Money?

Marginal Utility of Money and Elasticities of Demand

Marginal Utility of Money and Elasticities of Demand

The Marginal Utility of Money in the United States from 1917 to 1921 and from 1922 to 1932

The Marginal Utility of Money in the United States from 1917 to 1921 and from 1922 to 1932