The answer is that it is a simpler assumption than diminishing marginal utility
, and it allows the development of a richer theory.
Diamond and Saez argue that because of diminishing marginal utility
, the decrease in utility experienced by the rich under the new tax regime will be much less than the increase in utility experienced by the non-rich when the government redistributes the new tax revenue to them.
At the core of the concept of diminishing marginal utility
is the assumption--contrary to ecological economics thinking--that a world with perpetual economic growth is feasible.
For diminishing marginal utility
of income to justify an income transfer, assuming a short-run perspective, the short-run happiness loss to the person losing the income must be less than the short-run happiness gain to the person receiving it.
Under what conditions will a utility-maximizing individual with diminishing marginal utility
of income choose to undertake risky activities?
This utility function assumes that there is diminishing marginal utility
associated with landfilling as compared to recycling.
Beyond a certain point money can make something worse instead of better; one might say there can be a diminishing marginal utility
to an expanding pie.
The labor theory of value doesn't take into account the well-established law of diminishing marginal utility
, which states that the value to the customer declines with additional consumption of the good in question.
If relative standards of well-being do indeed matter more than absolute standards above a certain minimum threshold, then the fundamental microeconomic assumption of diminishing marginal utility
will have to be reexamined.
The Law of Diminishing Marginal Utility
applies specifically to commodities which are purely homogeneous in both space and time.
We wish to point out that, whether or not there is diminishing marginal utility
for improved customer service, these improvements (Johnston, 1991) probably require increasing costs (Levy, 1981) (in the absence of a reengineering or the substitution of information for more-expensive assets).
Even assuming diminishing marginal utility
for goods M and X ([U.
The law of diminishing marginal utility
and the law of increasing marginal cost for each product of consumers' collection exactly point to the limits, beyond which production must not be continued and before which production must not be stopped.