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Pastimes : Austrian Economics, a lens on everyday reality -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (144)	1/6/2003 1:30:35 PM
From: Roads End	Respond to of 445

LOL, the author must know my wife. -g-

To: Don Lloyd who wrote (144)	1/6/2003 4:43:53 PM
From: Wildstar	Respond to of 445

Don, I'm looking for an opinion on the quote from the following -- My opinion is that he's full of shit. -g- Since you have a keen attention to detail, let me gather my thoughts and make sure all my i's are dotted and t's are crossed before I post a serious answer. I'll do so in the next day. Wildstar

To: Don Lloyd who wrote (144)	1/7/2003 3:43:19 PM
From: Wildstar	Read Replies (1) \| Respond to of 445

Don, I’ve thought about this a lot. Initially, I thought I had a good explanation; however, I am afraid I do not. "...A shopper, for example, might drive across town to buy a $10 calculator instead of a $15 one, but forgo the same trip to purchase a $125 jacket for $5 less, illogically believing the greater percentage saved on the calculator makes the trip more worthwhile. ..." The fundamental fallacy with this statement is the assumption of objective value. For the author, $5 is $5 is $5. However, Austrians know this is false. Just as not every glass of water has the same value, neither does every unit of $5. The subjective marginal utility of a unit of $5 depends on how many $5 units one owns. However, I cannot explain why someone would value the $5 saved in buying a $15 item more than the $5 saved in buying a $125 dollar item. It seems to me that the opposite should be true. Let’s suppose the shopper owns a number X of five dollar bills. For the first scenario in which the shopper is buying a $15 item, the shopper will use his Xth and (X-1)th five dollar bills to buy the item no matter if he stays close to home or drives across town. To make the decision, the subjective marginal utility of driving across town is compared with the highest ranked alternative use of losing the (X-2)th five dollar bill. For the second scenario in which the shopper is buying a $125 item, the shopper will use his Xth, (X-1)th, (X-2)th, … ,(X-24)th dollar bills to buy the item no matter if he stays close to home or drives across town. To make the decision, the subjective marginal utility of driving across town is compared with the highest ranked alternative use of losing the (X-25)th five dollar bill. It seems to me that the shopper would value the (X-25)th five dollar bill more than the (X-2)th five dollar bill, according to the law of subjective marginal utility. In other words, the shopper should be more willing to drive across town to save $5 on a more expensive item than to save $5 on a less expensive item. This is puzzling because I know this is not how man acts. Wildstar