1
$\begingroup$

Can one say that the demand curve equals the marginal utility function? I have one course where this is stated.

However, the demand curve dan be derived from combining the utility function with the budget curve, while varying the price of the one good of interest and plotting the corresponding quantities found from the equilibria in the goods space and the budget curve.

While I do understand this method, I don't understand how the demand curve can be seen as the marginal utility function using this method (or any unknown other).

Please enlighten me :).

|improve this question|||||
$\endgroup$
  • $\begingroup$ here they say they are the same but... not a very clear answer if u ask me quora.com/… $\endgroup$ – babipsylon Jan 9 '18 at 22:37
2
$\begingroup$

This is true for quasilinear utility function. Suppose $$U = d + V(x), $$ where $d$ is the numeraire. The budget constraint is given by $p_x x + d = I$. The utility is then $$U = I - p_x x + V(x).$$ Maximizing this, we have the following FOC: $p_x = V'(x)$. That is, for a given $x$, my willingness to pay is $V'(x)$, the marginal utility.

|improve this answer|||||
$\endgroup$
  • $\begingroup$ Thx, I will check your answer shortly! $\endgroup$ – babipsylon Jan 13 '18 at 19:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.