Gossen's laws govern behavior. Marginal utility first law of gossen second law of gossen. E. Boehm-Bawerk's theory
As already mentioned, after the "starting volleys" of the marginalist revolution, almost synchronously issued in three different countries, an anticipation of the basic principles of limiting analysis was discovered and recognized in the forgotten work of G.G. Gossen with the long title "Development of the laws of human communication and the resulting rules of human activity "(1854). Hermann Heinrich Gossen(1810-1858), who graduated from the University of Bonn with a degree in finance and served as a petty official, and then tried his hand at private entrepreneurship to no avail, did not even achieve the theoretical success he expected, giving his treatise a meaning similar to Copernicus' achievement in astronomy. Disappointed after the publication of the book by the indifference of the public, Gossen bought and destroyed most of the circulation and soon died. The fame of the theoretician, who is not equal in originality in the entire history of economic thought (despite the fact that his book is "poorly structured ... and written in a clumsy and often ridiculous language" 1), came to Gossen posthumously. W. S. Jevons and L. Walras were particularly impressed by the Gossen diagrams, one of which showed the difference between the curve of diminishing utility and the demand curve, and the other graphically depicts the alignment of the marginal burden of labor and the marginal utility of the product of this labor. The economists of the Austrian school, who did not recognize the graphs, suggested calling 1st and 2nd laws of Gossen the "law of diminishing marginal utility" and "the law of weighted marginal utilities", formulated by Gossen himself as follows:
- 1) the value of one and the same pleasure decreases steadily if we continuously continue to consume the good that provides this pleasure, until, finally, saturation occurs (the first Gossen's law);
- 2) a person who can freely choose between many pleasures, but who does not have enough time to provide all of them to himself in full, must guarantee himself all of them in part, namely in such a ratio that the magnitude of each individual pleasure at the moment, when the process of creating this pleasure is interrupted, it would remain the same for all the pleasures (Gossen's second law).
In modern formulations 2nd Gossen's law emphasizes that:
- - utility maximization from the consumption of a given set of goods for a limited period of time is achieved if the goods are consumed in quantities at which the marginal utility of each of all consumed goods will be equal to the same value;
- - Pleasure maximization is achieved if cash is distributed among different pleasures in such a way that the last unit of money spent on each pleasure brings the same amount of pleasure.
F. Hayek, a representative of the neo-Austrian school (see Chapter 26), proposed to single out more 3rd Gossen's law. Although the term did not catch on, Gossen's own formulation deserves attention: "... In order to ensure the maximum amount of pleasures obtained from life, a person must allocate his time and energy in such a way that for each good the value of the last created atom is equal to the amount of necessary human efforts, if would he create this atom at the last moment when his forces are applied. "
This conclusion was made by Gossen at the end of the classification of goods, in which Gossen was the direct predecessor of the Austrian school. He divided all benefits into three categories:
- 1) benefits that directly serve to create any pleasure;
- 2) "items of the second class", which, before bringing pleasure, must be supplemented with something or undergo changes as a result of labor - tools, materials, raw materials, semi-finished products;
- 3) "objects of the third class", which themselves never become goods or their constituent parts, but are used for the production of goods or their parts; to this class Gossen included labor.
1 Gossen's law: often starts working with the 2nd unit of the product: In the presence of a certain amount of different products, an individual within a given limited period of time can consume them in different combinations, one of which should be the most beneficial
Consumer equilibrium condition
General principles of a rational consumer (with a budget constraint)
2 Gossen's law: marginal utility corresponds to the ratio of the prices of goods or The prices of goods and the amount of money available to any individual are the main factors limiting consumption. The most rational version of consumption is established when equality is achieved between the marginal utilities, which are obtained from the last monetary units spent on the purchase of individual goods.
1) MU1 / P1 = MU2 / P2(i.e. the ratio of marginal utilities to the price of goods is the same for all goods)
2) MU1 / MU2 = P1 / P2(i.e. the ratio of marginal utilities corresponds to the ratio of prices of goods)
!!! 35. Indifference curves: properties and types. Budget constraint boundary
Indifference curve shows different combinations of two economic goods that have the same utility for the consumer
The more to the right and higher the indifference curve is located, the more satisfaction the combinations of the two benefits presented by it bring. The set of indifference curves is called the indifference curve map. Two curves of indifference cannot intersect and touch each other.
Indifference curves reveal consumer preferences. However, this does not take into account two important circumstances: the prices of goods and
consumer income. Indifference curves only show the possibility of replacing one good with another. However, they do not determine which particular set of goods the consumer considers most beneficial for himself. This information is given to us budget constraint. It shows which consumer kits can be purchased for a given amount of money. If I is the consumer's income, Px is the price of good X, P is the price of good Y, and X and Y are the purchased quantities of goods, respectively, then the budget constraint equation can be written as follows:
The point where the indifference curve touches the budget constraint means equilibrium position buyer (consumer optimum)
The consumer's optimum. Marginal rate of substitution.
Marginal rate of substitution, substitution(marginal rate of substitution)- the amount of one product that the consumer is ready to exchange for another product so that the degree of his satisfaction from the consumption of this set of goods remains unchanged:
MRS = MU 1 / MU 2
Where Mi 1 and mi2- marginal utilities of the 1st and 2nd goods.
????? 37. Consumer reaction to changes in income. Price-consumption curve. Engel's curves.
The income-consumption lines and the Engel curve are used to analyze the situation in which Px and Ru are constant, but the consumer's income changes. With an increase in the real income of the consumer, the budget line shifts evenly to the right and up. Combining the parameters of market equilibrium at different levels of income, we obtain the line "income-consumption".
Income-consumption line(or, in American literature, the standard of living curve) connects the equilibrium points and shows how the consumption of goods X and Y changes with increasing income.
Engel curve(Engel curve)- a curve showing the dependence of the change in the value of consumption of the product on the change in consumer income (Fig. 4.4). Depending on the reaction
the consumer on the change in income when buying a product, there are three categories of goods: valuable, low-value and ordinary.
Chain goods (luxury goods)- goods, the demand for which increases sharply with the growth of income (luxury goods).
Normal goods- goods, the demand for which with an increase in income initially increases slightly, but as income increases further, it stabilizes
at some constant level (essentials).
Low-value(substandard) inferior goods- goods, the demand for which decreases with the growth of income and increases with its reduction.
Curve
Fig. 4.4.Engel curve (curve KMN)
For two regular items
The income-consumption line can be used to plot the Engel curve. Engel's curve is called the dependence of the volume of demand for a good on the consumer's income in graphical form.
1) Engel curve for normal goods with income-inelastic demand
2) Engel curve for high quality and expensive goods and services, luxury goods. If the income is less than I1, then the benefit is not available at all.
3) Engel curve for low-quality goods. Their consumption grows until income reaches the I1 level.
1) 
2) 
3) 
The price-consumption line passes through all points of consumer equilibrium associated with a change in the price of one of the goods.
Curve "price-consumption" As a constant value, income, and as a variable - the price of one of the goods,
Hermann Heinrich Gossen (1810-1858)- German lawyer and the economist is the forerunner of the theory of marginalism. IN 1847 g. started developing his own economic theory. He expounded this theory in published in 1854 g. book "Development of the laws of social exchange and the resulting rules of human activity" ("Development of the laws of human interaction").
G. Gossen's theory is based on the fact that the main motive that determines human behavior is the desire to obtain maximum pleasure (maximum utility). Concerning the main task of economics is the formulation of rules for maximizing (increasing the total amount) of utility.
These rules are reflected in the formulated G. Gossen laws... According to first Gossen's law – the law of saturation of needs- in one continuous operation of consumption, the utility of subsequent units of the product decreases; with repeated operations of consumption, the utility of the first units of the product decreases. G. Gossen formulates it as follows: "The value of one and the same pleasure is constantly decreasing, up to saturation, as we experience this pleasure without hindrance."
First law reflects the link between decline marginal utility and falling demand : the desirability of a given good decreases as its availability increases.
Gossen's second law is determined by the author in two versions (or editions):
- deduced from the analysis of the subsistence economy of a lonely person who found himself isolated from society - the economy of Robinson.
Having a certain amount of different foods, a lonely person (Robinson) can consume them in various combinations during a given period of time. It is necessary to find such a combination that provides maximum pleasure (enjoyment). This is achieved by establishing equality marginal utilities of all products. The marginal utility of any good (any good) is determined by the increase in total utility obtained as a result of the consumption of an additional (next) unit of the given good (this good).
- formulated for the conditions of a commodity economy.
The prices of goods that a consumer can purchase and the amount of money at his disposal are the main factors limiting his consumption. Choosing the most rational (optimal) consumption option, i.e. the option that provides the maximum satisfaction of needs is achieved when the marginal utilities are equal, which can be obtained from the last monetary units spent on the purchase of individual goods.
In 1854, a book with the long title "Development of the laws of social exchange and the resulting rules of human activity" appeared in the bookstores in Germany. Its author was Hermann Heinrich Gossen. The book was written in heavy language, replete with numerous formulas and tedious examples. Gossen's work was not sold out for a long time, and in 1858, distressed by the failure, the author almost completely withdrew the circulation from circulation and destroyed it. Only a quarter of a century later, after the works of W. Jevons, K. Menger and L. Walras were seen, it became widely known. In 1878, after four years of searching, a copy of Gossen's book was found in the library of the British Museum by a friend of W. Jevons, Professor Adams. In 1889 and 1927. Gossen's book was reprinted again.
Gossen's work opened up a new direction in economic thought. The treasury of economic thought includes two postulates, which later, on the initiative of F. Wieser and V. Lexis, began to be called the first and second laws of Gossen. Through these laws, Gossen described the rules of rational behavior of a subject seeking to extract maximum utility from his economic activities.
The first question that arises when solving this problem is what determines the value of utility? Gossen drew attention to the fact that utility depends not only on the consumer properties of the good, but also on the process of its consumption.
4.2 The first law of Gossen.
The meaning of Gossen's first law is expressed in two provisions formulated by the author:
in one continuous act of consumption, the utility of the next unit of the consumed good decreases;
with the repeated act of consumption, the usefulness of each unit of the good decreases in comparison with its usefulness at the initial consumption.
The essence of these provisions is clearly shown in Fig. one.
Fig. 1. Decrease in utility in one continuous act of consumption (a) and with repeated acts of consumption (b).
Plotting on the abscissa the units of some good, and on the ordinate of their utility, it is easy to construct the AC curve (Fig. 1a), which will express the decrease in utility during one act of consumption. Curves АС, А 1 С 1, А 2 С 2 (Fig. 1, b) will accordingly express the decrease in the utility of units of the good in subsequent acts of consumption.
On this basis, Gossen concludes: "Individual atoms of the same consumer good have very different values."
The significance of Gossen's first law for economic science consists, first, in the fact that it allows one to distinguish between the general utility of a certain stock of goods and the marginal utility of this good. Thanks to this, the question that has long tormented economists has been resolved: why is a "practically useless" diamond more expensive than one of the "most useful" goods - water?
Secondly, the postulate of a decrease in the marginal utility of a good is a necessary condition for an economic entity to achieve a state of equilibrium, i.e. such a state in which he extracts maximum utility from the resources at his disposal.
4.3 The second law of Gossen.
The subject will be able to achieve a state of equilibrium if he is guided by the second Gossen's law, which, in the author's formulation, sounds like this: "An individual who has the freedom to choose between a number of different types of consumption, but does not have enough time to use all of them in full, in order to achieve the maximum of his pleasure, no matter how different the absolute value of individual pleasures, must, before using fully the greatest of them, use all of them partially, and, moreover, in such a ratio that the size of each pleasure at the moment of termination of its use for all types of consumption remains equal " ... * In modern language, this law can be formulated as follows: in order to get the maximum utility from the consumption of a given set of goods for a limited period of time, each of them must be consumed in quantities such that the marginal utility of all consumed goods will be equal to the same value. If there is no such equality, then by redistributing the time allocated for the consumption of individual goods, it is possible to increase the overall utility.
Fig. 2. Graphic illustration of Gossen's law.
The relationship between the marginal usefulness of bread and milk. The first quadrant shows a graph of the marginal usefulness of bread, the second - milk. At the same time, the units of measurement of the natural quantities of both products are chosen in such a way that in a unit of time it would be possible to consume either a unit of bread or a unit of milk. The segment AB represents the amount of time the subject has to consume the selected food items. To determine the equilibrium structure of consumption, the consumer only needs to raise the "bar" AB (keeping its horizontal position) to the "stop" so that it takes the position A`B`. The projections of the "stop" points on the abscissa axis will indicate the desired set of consumed goods: Qhl *, Qmol *.
Fig. 3. Decrease in the marginal utility of labor.
Gossen considers labor as a special good, the usefulness of which changes in full accordance with the first law. But unlike ordinary goods, the marginal utility of labor can reach negative values. “Any movement,” writes Gossen, “after we have rested for a long time, gives us pleasure at first. As it continues, this pleasure obeys the above-stated law of falling. pleasure, but the need to continue spending one's own strength gives a sensation opposite to pleasure "*. In fig. 3 N 0 hours of work - "for joy", the further continuation of work - "for a burden." When determining the optimal balance between free and working time, Gossen recommends adhering to the following rule: "In order to achieve the greatest pleasure in life, a person must allocate his time and energy when achieving various kinds of pleasure in such a way that the value of the ultimate atom of each pleasure received would be equal to fatigue. which he would endure if he had reached this atom at the last moment the expenditure of his energy. "
4.4 Measurement of the value of utility.
All points of view on measuring utility can be grouped into two groups. Some economists use the so-called “cardinalist approach”. They are trying to introduce quantitative units of measure of utility - monetary, special, such as utile (from the English, "utility" - utility). Other economists use an ordinal approach (from German "Die Ordnung" - order). They believe that since the category of marginal utility is purely subjective, i.e. for each individual consumer, the usefulness of any product is theoretically always individual, then it cannot be measured. From their point of view, it is advisable to introduce “ordinal”, i.e. ordinal "value of utility, with the help of which it is possible to find out whether the degree of satisfaction of the need has decreased or increased. Utility has the property of ordinal measurability when alternative products can be ranked. By choosing, the consumer assigns the first rank to the product with greater utility for him. Then comes the second, third and other ranks.
4.4.1 Cardinalist concept.
The cardinalist concept is based on three hypotheses.
Hypothesis I. The consumer can express his desire to acquire some good by quantifying its utility.
Assessments of utility are subjective, so you cannot add up the weights attributed to the same good by different consumers. But each individual consumer carries out with the estimates of utility all the mathematical operations that are applicable to numbers. The relationship between the utility received by the consumer and the amount of goods consumed by him is called the utility function.
Hypothesis I implies that each type of goods has general and marginal utility for the consumer. The total utility of a certain type of goods is the sum of the utilities of all units of this good available to the consumer. Thus, the total utility of 10 apples is equal to the sum of the utilities that the consumer attributes to each apple. How does the value of the total utility of a good change as its quantity increases? The second hypothesis is used to answer this question.
Hypothesis II. The marginal utility of the good decreases, i.e. the utility of each subsequent unit of a certain type of goods received at the moment is less than the utility of the previous unit. This statement is the "first law of Gossen" and proceeds from the fact that the needs of people are satiable.
If the assumptions about the possibility of quantitative measurement of utility and the decrease of its marginal value correspond to reality, then this means that the basis of an individual's consumption plan is a table compiled by him, in which each unit of goods consumed has a quantitative assessment of utility. An example of such a table is table. 4, named after its first compiler by the Menger table. (detailed in chapter 7.2.2)
Hypothesis III. The consumer spends his budget in such a way as to get the maximum utility from the totality of the acquired goods.
In accordance with hypothesis III, the consumer, focusing on Menger's table, taking into account the given prices, forms such an assortment of purchases that, with his budget, gives the maximum amount of utilities.
To achieve this goal, the consumer must be guided by Gossen's second law, according to which the maximum utility is provided by such a purchase structure in which the ratio of the marginal utility (u) of a good to its price (P) is the same for all goods.
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Let us prove Gossen's second law by contradiction. Suppose that for any pair of goods equality (1) does not hold: u Н / P Н> u G / P G. This means that when buying a good H, on average, 1 rub. more utility is acquired than when buying good G. Therefore, an increase in the volume of purchases of good H due to a decrease in the volume of purchases of good G allows the consumer to increase his satisfaction with a given budget. And only when equality (1) is fulfilled for all goods, for a given budget, it is impossible to increase the sum of the total utility of the purchased goods. In this case, the consumer is said to have reached equilibrium.
Almost every person has limited or unlimited needs? Everyone's needs are endless. We want both, but can we always do it? It turns out, not always, because our incomes, unfortunately, for the majority of the population are limited.
Let's say you walk into a buffet that sells a cake for 30 rubles. apiece, and a glass of tea costs 10 rubles. There are only 60 rubles in a student's wallet. You need to choose the set of benefits that will give you the greatest satisfaction. How will you spend your money?
You can buy 2 cakes for all 60 rubles, but you won't get as much pleasure from the second cake as from the first one. Because there is nothing to wash it down with, and there are cakes in dry water too much load on the body.
But there is a second option: instead of a second cake, you can buy 3 glasses of tea or two glasses of coffee. By doing so, you increase the overall utility you receive. Why? Because three glasses of tea or two glasses of coffee will bring much more satisfaction than a second serving of cake. But not everyone is able to drink three glasses of tea. Therefore, it is necessary to seek consumer balance. Say, ask your parents not 60, but 80 rubles. for breakfast. Then you can buy two cakes and two glasses of tea. But you can limit yourself to 60 rubles.
In short, according to Gossen's Law 2, the buyer must stop buying various goods at points, where the intensity of meeting their needs becomes the same. If you have 60 rubles, then with n. at prices it is more profitable for you to buy 1 cake and 3 glasses of tea. Why? Because such a set complies with the rule of utility maximization per 1 ruble. student income. If the marginal utility of 1 cake is 120 Ut., And the marginal utility of the third glass of tea is 40 Ut., Then this rule is mathematically written as follows:
MU of product A: Price of product A = MU of product B: Price of product B (1)
In our example, this ratio will look like this: 120: 30 = 40: 10 = 4 = 4.
With such a set, the overall utility of the products purchased by the student will be the highest: 120 + 80 + 60 + 40 = 300 yt.
In conclusion, we conclude that a rational consumer within a limited budget makes his purchases in this way, so that each purchased product brings him equal marginal utility in proportion to the price of this product ... In this case, the consumer gets maximum satisfaction of his needs with a limited budget.
table 2
A combination of two products that maximize utility with a budget of 60 rubles.
If someone has twice the budget, then the buyer can choose for breakfast and there may be completely different more expensive products. But here, too, he unconsciously acts in the spirit of Gossen's second law.