Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: gpowell who wrote (275)	11/10/2003 9:06:55 PM
From: Don Lloyd	Read Replies (1) \| Respond to 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

To: gpowell who wrote (275)	11/11/2003 7:57:37 PM
From: gpowell	Read Replies (2) \| Respond to of 445

Marginal rate of substitution Let’s assume for the moment a two good system. A multiple choice system can be reduced to a two choice system by the creation of a composite good that represents all goods save one. The marginal rate of substitution is the combination of good changes that just leave the decision maker indifferent to the change, i.e. how much does good 1 need to change in relation to a change in good 2 to make the consumer indifferent to the two states. This necessary change in good 1, given a change in good 2, that just maintain the decision maker’s indifference defines the marginal rate of substitution of good 1 for good 2. An interesting observation is that, in equilibrium and under rational utility maximizing assumptions, all market participants have the same marginal rate of substitution for every good they choose to consume.