While studying the Marshallian Theory of Consumer Behaviour, I came across the assumption that the marginal utility of money is assumed to be constant. Can someone please explain why is this so?


Marshallian Theory is notoriously about computing consumer surplus (and then welfare changes).

But it would be nonsensical to perform such calculations if at the level of one individual, the unit of valuation of surplus, i.e. the marginal utility of money (or the utility of one extra euro), were changing before and after changes in, say, prices. Also, what sense would it make to compute surplus (pleonastically) over many individuals if each of them had a different marginal utility of money?

In these two "within-individual" and "between-individual" cases, not having a constant marginal utility of money would be like summing objects with different units... Hence this assumption.

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  • $\begingroup$ Any question @MrAP ? $\endgroup$ – keepAlive Nov 29 '19 at 20:36

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