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Gossen's Second Law
Gossen's Second “Law”, named for Hermann Heinrich Gossen (1810–1858), is the assertion that an economic agent will allocate his or her expenditures such that the ratio of the marginal utility of each good or service to its price (the marginal expenditure necessary for its acquisition) is equal to that for every other good or service. Formally, :\frac=\frac~\forall\left(i,j\right) where * U is utility * x_i is quantity of the i-th good or service * p_i is the price of the i-th good or service Informal derivation Imagine that an agent has spent money on various sorts of goods or services. If the last unit of currency spent on goods or services of one sort bought a quantity with ''less'' marginal utility than that which would have been associated with the quantity of another sort that could have been bought with the money, then the agent would have been ''better off'' instead buying more of that other good or service. Assuming that goods and services are continuously divisi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hermann Heinrich Gossen
Hermann Heinrich Gossen (7 September 1810 – 13 February 1858) was a Prussian economist who is often regarded as the first to elaborate a general theory of marginal utility. Life and work Gossen studied in Bonn, then worked in the Prussian administration until retiring in 1847, after which he sold insurance until his death. Prior to Gossen, a number of theorists, including Gabriel Cramer, Daniel Bernoulli, William Forster Lloyd, Nassau William Senior, and Jules Dupuit had employed or asserted the significance of some notion of marginal utility. But Cramer, Bernoulli, and Dupuit had focussed upon specific problems, Lloyd had not presented any application, and if Senior actually employed to the development of more general theory then he did so in language that caused the application to be missed by most readers. Gossen's book ''Die Entwickelung der Gesetze des menschlichen Verkehrs, und der daraus fließenden Regeln für menschliches Handeln'' (''The Development of the Laws of Hu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interactions of Agent (economics), economic agents and how economy, economies work. Microeconomics analyzes what's viewed as basic elements in the economy, including individual agents and market (economics), markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on glossary of economics, these elements. Other broad distinctions within economics include those between positive economics, desc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Utility
In economics, utility is the satisfaction or benefit derived by consuming a product. The marginal utility of a Goods (economics), good or Service (economics), service describes how much pleasure or satisfaction is gained by consumers as a result of the increase or decrease in Consumption (economics), consumption by one unit. There are three types of marginal utility. They are positive, negative, or zero marginal utility. For instance, you like eating pizza, the second piece of pizza brings you more satisfaction than only eating one piece of pizza. It means your marginal utility from purchasing pizza is positive. However, after eating the second piece you feel full, and you would not feel any better from eating the third piece. This means your marginal utility from eating pizza is zero. Moreover, you might feel sick if you eat more than three pieces of pizza. At this time, your marginal utility is negative. In other words, a negative marginal utility indicates that every unit of good ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Good (economics)
In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying Product (business), product. A common distinction is made between goods which are transferable, and Service (economics), services, which are not transferable. A good is an "economic good" if it is useful to people but scarcity, scarce in relation to its demand so that human effort is required to obtain it.Samuelson, P. Anthony., Samuelson, W. (1980). Economics. 11th ed. / New York: McGraw-Hill. In contrast, free goods, such as air, are naturally in abundant supply and need no conscious effort to obtain them. Private goods are things owned by people, such as Television, televisions, living room furniture, wallets, cellular telephones, almost anything owned or used on a daily basis that is not food-related. A consumer good or "final good" is any item that is ultimately consumed, rather than used in the production of another good. For example, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Service (economics)
A service is an "(intangible) act or use for which a consumer, firm, or government is willing to pay." Examples include work done by barbers, doctors, lawyers, mechanics, banks, insurance companies, and so on. Public services are those that society (nation state, fiscal union or region) as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Services may be defined as intangible acts or performances whereby the service provider provides value to the customer. Key characteristics Services have three key characteristics: Intangibility Services are by definition intangible. They are not manufactured, transported or stocked. One cannot store services for future use. They are produced and consumed simultaneously. Perishability Services are perishable in two regards: * Service-relevant resources, processes, and systems are assigned for service delivery during a specific period in time. If the service consumer does not ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Utility
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosophers such as Jeremy Bentham and John Stuart Mill. The term has been adapted and reapplied within neoclassical economics, which dominates modern economic theory, as a utility function that represents a single consumer's preference ordering over a choice set but is not comparable across consumers. This concept of utility is personal and based on choice rather than on pleasure received, and so is specified more rigorously than the original concept but makes it less useful (and controversial) for ethical decisions. Utility function Consider a set of alternatives among which a person can make a preference ordering. The utility obtained from these alternatives is an unknown function of the utilities obtained from each alternative, not the sum of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Well-defined
In mathematics, a well-defined expression or unambiguous expression is an expression whose definition assigns it a unique interpretation or value. Otherwise, the expression is said to be ''not well defined'', ill defined or ''ambiguous''. A function is well defined if it gives the same result when the representation of the input is changed without changing the value of the input. For instance, if ''f'' takes real numbers as input, and if ''f''(0.5) does not equal ''f''(1/2) then ''f'' is not well defined (and thus not a function). The term ''well defined'' can also be used to indicate that a logical expression is unambiguous or uncontradictory. A function that is not well defined is not the same as a function that is undefined. For example, if ''f''(''x'') = 1/''x'', then the fact that ''f''(0) is undefined does not mean that the ''f'' is ''not'' well defined – but that 0 is simply not in the domain of ''f''. Example Let A_0,A_1 be sets, let A = A_0 \cup A_1 and "define" f: A \ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Budget Constraint
In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is P_x x+P_y y=m where P_x is the price of good X, and P_y is the price of good Y, and m = income. Soft budget constraint The concept of soft budget constraints is commonly applied to economies in transition. This theory was originally proposed by János Kornai in 1979. It was used to explain the "economic behavior in socialist economies marked by shortage”. In the socialist transition economy there are soft budget constraint on firms because of subsidies, c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Lagrange Multipliers
In mathematical optimization, the method of Lagrange multipliers is a strategy for finding the local maxima and minima of a function subject to equality constraints (i.e., subject to the condition that one or more equations have to be satisfied exactly by the chosen values of the variables). It is named after the mathematician Joseph-Louis Lagrange. The basic idea is to convert a constrained problem into a form such that the derivative test of an unconstrained problem can still be applied. The relationship between the gradient of the function and gradients of the constraints rather naturally leads to a reformulation of the original problem, known as the Lagrangian function. The method can be summarized as follows: in order to find the maximum or minimum of a function f(x) subjected to the equality constraint g(x) = 0, form the Lagrangian function :\mathcal(x, \lambda) = f(x) + \lambda g(x) and find the stationary points of \mathcal considered as a function of x and the Lagrange mu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Gossen's Laws
Gossen's laws, named for Hermann Heinrich Gossen (1810–1858), are three laws of economics: * Gossen's First Law is the "law" of diminishing marginal utility: that marginal utilities are diminishing across the ranges relevant to decision-making. * Gossen's Second Law, which presumes that utility is at least weakly quantified, is that in equilibrium an agent will allocate expenditures so that the ratio of marginal utility to price (marginal cost of acquisition) is equal across all goods and services. :\frac=\frac\,\forall\left(i,j\right) :where :* U is utility :* x_i is quantity of the i-th good or service :* p_i is the price of the i-th good or service * Gossen's Third Law is that scarcity In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ... is a precondition for economic value. Se ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Utility
In economics, utility is the satisfaction or benefit derived by consuming a product. The marginal utility of a Goods (economics), good or Service (economics), service describes how much pleasure or satisfaction is gained by consumers as a result of the increase or decrease in Consumption (economics), consumption by one unit. There are three types of marginal utility. They are positive, negative, or zero marginal utility. For instance, you like eating pizza, the second piece of pizza brings you more satisfaction than only eating one piece of pizza. It means your marginal utility from purchasing pizza is positive. However, after eating the second piece you feel full, and you would not feel any better from eating the third piece. This means your marginal utility from eating pizza is zero. Moreover, you might feel sick if you eat more than three pieces of pizza. At this time, your marginal utility is negative. In other words, a negative marginal utility indicates that every unit of good ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginalism
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility. Although the central concept of marginalism is that of marginal utility, marginalists, following the lead of Alfred Marshall, drew upon the idea of marginal physical productivity in explanation of cost. The neoclassical tradition that emerged from British marginalism abandoned the concept of utility and gave marginal rates of substitution a more fundamental role in analysis. Marginalism is an integral part of mainstream economic theory. Important marginal concepts Marginality For issues of marginality, constraints are conceptualized as a ''border'' ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
