Gossen's laws, named for

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 admin ...

(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 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 philosoph ...

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 In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not t ...

and

services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...

. :

\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.

References

* Gossen, Hermann Heinrich; ''Die Entwicklung der Gesetze des menschlichen Verkehrs und der daraus fließenden Regeln für menschliches Handeln'' (1854). Translated into English as ''The Laws of Human Relations and the Rules of Human Action Derived Therefrom'' (1983) MIT Press, . Marginal concepts Utility {{economics-stub

See also

References