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

To: gpowell who wrote (310)	11/18/2003 12:05:59 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 445

gpowell, >The last dollar I spend this month in a series of smaller >and smaller satisfaction-increasing exchanges There is no particular path requirement towards utility maximization. There is no requirement for a path at all. However, there is an order that would be at least roughly followed if money resources were only increased as needed after each exchange to enable the next one. >exchanges must be weighed against the expectation that any >remaining unspent dollars will be available to take >advantage of next month's half price sales and the like. Intertemporal considerations are already reflected in the reservation price of the decision maker. The decision maker faces the same set of intertemporal considerations before and after each exchange, all else being equal. This not an intertemporal issue or really necessarily involving time preference at all. What we are talking about is the marginal utility of money (actually the marginal exchange value of money as it is only the things that money buys that have actual use or utility). The marginal utility (or marginal exchange value) of money diminishes at a slower rate than any consumer good because it can serve to buy a full spectrum of goods over an indefinite future. Money only has a value to hold because the future and my future preferences, market prices, and values are all uncertain. If I always spend or invest every dollar as soon as I receive it, I will end up with less goods and satisfaction than if I hold some dollars to make unpredictable purchases as an opportunity presents itself. This question doesn't come up in a non-money using barter economy. Arbitrarily close states are tangential to the reason I first introduced indifference states and we have stayed a bit from where I first introduced the concept. I agree. Why don't you try to clearly restate the reason for your indifference states, taking my demonstrated confusion into account. Intermediate Microeconomics by Hal R. Varian Thanks, I have an order in. Regards, Don