Marginal Utility of Money
Alfred Marshall identified the area to the left of a demand curve as consumer surplus, but he added that his discussion was valid only under the assumption of ‘constant marginal utility of money’. For much of the 20th century economists debated the meaning of that phrase and its relevance to consumer surplus. The analysis became clear only after the development of duality theory, particularly the properties of the expenditure function. Marshall’s caution becomes unnecessary with a proper definition of consumer surplus.
KeywordsConsumer surplus Envelope theorem Hicksian and Marshallian demands Homothetic utility functions Indirect utility function Marginal utility of money Marshall, A. Money Roy’s equality
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