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Why Marginal Utility of Money Is Constant in Marshalls Analysis?

Marshall's analysis assumes the marginal utility of money remains constant because it is meant to serve as an ideal measure. Specifically, it is assumed that a person's utility increases by one unit when income increases by one unit and decreases by one unit when income decreases by one unit, keeping marginal utility constant. However, this assumption is unrealistic as a person's marginal utility of money may actually increase or decrease depending on how much money they have left. When they have less money remaining, its marginal utility is higher.

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514 views

Why Marginal Utility of Money Is Constant in Marshalls Analysis?

Marshall's analysis assumes the marginal utility of money remains constant because it is meant to serve as an ideal measure. Specifically, it is assumed that a person's utility increases by one unit when income increases by one unit and decreases by one unit when income decreases by one unit, keeping marginal utility constant. However, this assumption is unrealistic as a person's marginal utility of money may actually increase or decrease depending on how much money they have left. When they have less money remaining, its marginal utility is higher.

Uploaded by

Prerna Gill
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Why marginal utility of money is constant

in marshalls analysis?
When money income increases by one unit the utility increases and when money
income decreases by one unit the utility decreases by one unit , that reflects a
positive response that makes the MU of money remains constant .
As the quantity of money with a person increases, its marginal utility diminishes
and as the quantity of money decreases, its marginal utility increases.
It is assumed that money measures the marginal utility of a commodity, as such,
its MU should remain constant to so as to serve as an ideal measure.
The assumption that MU of money remains constant is unrealistic. In actual life,
MU of money may increase or decrease. When a consumer buys more of the
goods, he is left with less amount of money. Smaller the amount of money higher
is its MU. Due to increase in the MU of money, a consumer will have to re arrange
his expenditure on different goods. As a result, application of law will become
difficult.


marginal utility of money

Change in the total satisfaction derived from money that results from one unit of
change in the quantity of money.

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