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 ...
.
:
:where
:*
is utility
:*
is quantity of the
-th good or service
:*
is the price of the
-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.
See also
*
Marginalism
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
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