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Pastimes : Austrian Economics, a lens on everyday reality
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To: gpowell who wrote (275)11/10/2003 9:06:55 PM
From: Don Lloyd  Read Replies (1) of 445
 
gpowell,

Ordinary Demand Curve:
A decision maker’s ordinary demand curve is derived from maximization of utility subject to a budget constraint. Given prices of all goods, income, and tastes and preferences embodied in a utility function, the utility maximizing consumer purchases an optimal combination of goods. By changing the price of one good (Good X), holding everything else constant (prices of other goods, income, and tastes and preferences), and tracking the response of the optimal amount of Good X purchased, a demand curve for Good X is derived.

With the following provisos, this seems OK. --

The utility is subjective and choices are the result of ordinal rankings, and not any kind of cardinal measurements.

An optimal amount of a good requires that the good be divisible. If one of the exchanges that I make in maximizing my subjective overall satisfaction is to buy an orange for $2, all that can be known is that the state of having the orange and $2 less is subjectively ranked higher than the state of having the $2 and no orange.

Budget constraint is misleading. Money is just another subjectively valued economic good providing for purchases in an uncertain future. Any particular good may or may not be preferred to the amount of money required to purchase it.

Regards, Don
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