The marginal utility of money: A modern Marshallian approach to consumer choice

Daniel Friedman, Jozsef Sakovics

Research output: Working paperDiscussion paper

Abstract

We reformulate neoclassical consumer choice by focusing on λ, the marginal utility
of money. As the opportunity cost of current expenditure, λ is approximated by the
slope of the indirect utility function of the continuation. We argue that λ can largely
supplant the role of an arbitrary budget constraint in partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive approach to consumer choice.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages31
Publication statusPublished - 18 Jul 2011

Publication series

NameESE Discussion Papers
No.209

Keywords

  • budget constraint
  • separability
  • value for money
  • D01
  • D03
  • D11

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