Gossen's laws, named for

Hermann Heinrich Gossen Hermann Heinrich Gossen (7 September 1810 – 13 February 1858) was a German economist who is often regarded as the first to elaborate, in detail, a general theory of marginal utility. Prior to Gossen, a number of economic theorists, including G ...

(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 In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a normative context, utility refers to a goal or objective that we wish ...

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 anything that is good, usually in the sense that it provides welfare or utility to someone. Alan V. Deardorff, 2006. ''Terms Of Trade: Glossary of International Economics'', World Scientific. Online version: Deardorffs ...

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.

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