Re: Marginal Utility
The reason that these "cut and pastes" are so easy to challenge is the implications of taking text out of context to try to prove that the Marginal Utility of Money is constant. Most economists will say money tends to exhibit Declining Marginal Utility. I have illustrated this with ease before using many examples but since you are stuck on my use of goods vs. money then I will switch gears and talk exclusively about money (for a moment.)
Originally Posted by dnsmith
Another easy example of the demonstration of Declining Marginal Utility of Money is the obvious utility difference in increasing your wealth from $1,000 to $2,000 vs. $1,000,000 to $1,001,000. The amount of change in actual dollars is identical between the two subjects, but the utility difference is beyond obvious. Person B, the change was not all that great. But in the case of Person A the amount was doubled. Amazing difference in behavior and economic effect. Therefore the Marginal Utility of Money must decline the further we go. Say even compared to another subject at $100,000,001,000 to $100,000,002,000. You can see this clearly the further we go. The holder of these large pools of cash are not looking to the next $1,000 increment with the same utility as the one that started with $1,000. These concentrations of wealth are looking for much greater returns. Therefore, the Marginal Utility of Money cannot be linear.
The behavior aspects of this are also beyond easy to explain. As your wealth increases you tend to spend each increment on goods that have more utility per dollar, putting off those with less utility per dollar until you have bought the more important goods. The crossroads of economic theory and realistic human behavior for those that are rational. That is what economists are getting at when income levels effect the purchase of goods and services to statisfy a utility. In the actual purchase of goods and services, the amount of money in hand all pretty much has the same utility in that state. However, earning more money shows different utility. And the Declining Marginal Utility of those Goods and Services still exists with very few exceptions. In other words, the difference (in economics and bahavior) of income in and use of that income out for other goods and services.
Take the same two people from the above illustration. Those two subjects will make a very different decision when it comes to the consideration in the purchase of an expensive $2,000 laptop. Both can now afford it, technically, but odds are only one will make the purchase. Person A will purchase more important items that return the most utility at the lowest price. "Necessities" may be a good term here using their $2,000 to ensure basic needs before the nice new expensive laptop idea. Thus, putting off items which give less utility until those important purchases have been made. To person B, the laptop decision may not be that big of a deal. Why? The general Declining Marginal Utility of Money.
- Frustrated Independent
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
"Every time something really bad happens, people cry out for safety, and the government answers by taking rights away from good people.” - Penn Jillette amazingly enough, and I agree.