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I think you meant "diminishing marginal utility". The law of diminishing marginal returns concerns employees not goods consumed. Though not specifically releva

I think you meant "diminishing marginal utility". The law of diminishing marginal returns concerns employees not goods consumed. Though not specifically relevant to your post, this "law" doesn't always hold. Some goods have a utility threshold that must be crossed before they become valuable or increase in utility (e.g., various medicines and antibiotics). Money operates similarly, i.e., its utility does not necessarily diminish, much less in monotonic fashion. Assume that if I make N dollars, I may be able to afford popcorn or I may be able to afford butter, but not both. Let's also assume that I derive little satisfaction from popcorn or butter alone. However, if I make N+1 dollars, I can afford both popcorn and butter from which I derive a great deal of satisfaction. The addition $1 has greater utility than the Nth dollar I had previously.

roymurdock 11y ago
Yeah you're right, thanks for catching that.
dpark 11y ago
That is extremely flawed logic. You picked an arbitrary example to make your point, but your point requires excluding other possible uses of the Nth dollar to make any sense. "Oh, with 15k I could buy a compact car that I wouldn't like much, but with 30k I could buy an entry level sports car that I would enjoy a lot. So the second 15k has greater utility than the first 15k." Does this make sense? Of course not. The first 15k can buy you reliable transportation which is more valuable than the fun from a sports car. 15k can also pay for a year of housing and food in many places, which has way greater utility than the ability to drive like a jackass on the highway. With your N dollars, you might not enjoy the popcorn without butter, but you could also buy something else to eat, or some fuel, or any number of other things that have more utility than butter on your popcorn. Every dollar adds additional things that you could purchase. But each dollar comes with declining utility. First you get necessities, then wants, then luxuries. If you have insufficient dollars to buy popcorn with butter, you probably need to spend your money on something now useful than popcorn anyway. Popcorn is a want and you probably haven't met your necessities.
- tamana 11y ago
  The dollar that pays of my payday loan, or gets me a security security deposit at an apartment, has huge marginal value. Growing from subsistence to investment has near infinite. Marginal utility.
  - raquo 11y ago
    You could just as well say that the cent that buys you a soda has a bigger marginal utility than the previous one. Sure, maybe in the context of that one transaction, but not in any general way.
    - encoderer 11y ago
      Except that paying off your proximate debt and securing a place to live is far more important, from a Maslow sense, than buying a soda?
      - Terr_ 11y ago
        Depends, are you thirsty?
      - adamsea 11y ago
        People you should be talking about time.
      - raquo 11y ago
        Doesn't matter, the principle is the same.
jvz 11y ago
Even in a (totally unrealistic) scenario where N dollars are "useless" to you, but N+1 get you something of great value, it's not true that the (N+1)th dollar has greater marginal utility than any of the other N dollars, because you need all those other dollars to buy the thing. In other words, the previous N dollars weren't actually useless: they enabled you to obtain the (N+1)th dollar. Without them, that (N+1)th dollar is just your first dollar.
- TeMPOraL 11y ago
  Sometimes there's a psychological difference though. Say you have $8 in your pocket, and there's a movie you like to see in the cinema nearby. The ticket costs $10. You know you won't get that $2 in a reasonable timeframe - maybe it's your only evening off, so even if you get some more cash tomorrow you won't have a chance to see the movie. Maybe you also don't feel like begging strangers for change. In this situation, you may find yourself wishing for those $2 very much, and after realizing you can't get them, you'll say "fuck it, I may as well spend my $8 on some pizza or beer" and then do so. Maybe that last $2 don't have greater marginal value than the $8 in your pocket, but that $8 loses its perceived value the moment you realize you won't get additional $2 in time. It's not a hypothetical situation, by the way. I've been in those several times in the past, and followed exactly the same pattern of emotional reasoning.
  - pc86 11y ago
    Probably OT, but all things being equal the person that saves the $8 until next week's night off will probably end up in a better place in life than the person that gets a slice of pizza and a beer.
deleted 11y ago
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roymurdock 11y ago

Yeah you're right, thanks for catching that.

dpark 11y ago

That is extremely flawed logic. You picked an arbitrary example to make your point, but your point requires excluding other possible uses of the Nth dollar to make any sense. "Oh, with 15k I could buy a compact car that I wouldn't like much, but with 30k I could buy an entry level sports car that I would enjoy a lot. So the second 15k has greater utility than the first 15k." Does this make sense? Of course not. The first 15k can buy you reliable transportation which is more valuable than the fun from a sports car. 15k can also pay for a year of housing and food in many places, which has way greater utility than the ability to drive like a jackass on the highway. With your N dollars, you might not enjoy the popcorn without butter, but you could also buy something else to eat, or some fuel, or any number of other things that have more utility than butter on your popcorn. Every dollar adds additional things that you could purchase. But each dollar comes with declining utility. First you get necessities, then wants, then luxuries. If you have insufficient dollars to buy popcorn with butter, you probably need to spend your money on something now useful than popcorn anyway. Popcorn is a want and you probably haven't met your necessities.

tamana 11y ago
The dollar that pays of my payday loan, or gets me a security security deposit at an apartment, has huge marginal value. Growing from subsistence to investment has near infinite. Marginal utility.
- raquo 11y ago
  You could just as well say that the cent that buys you a soda has a bigger marginal utility than the previous one. Sure, maybe in the context of that one transaction, but not in any general way.
  - encoderer 11y ago
    Except that paying off your proximate debt and securing a place to live is far more important, from a Maslow sense, than buying a soda?
    - Terr_ 11y ago
      Depends, are you thirsty?
    - adamsea 11y ago
      People you should be talking about time.
    - raquo 11y ago
      Doesn't matter, the principle is the same.

jvz 11y ago

Even in a (totally unrealistic) scenario where N dollars are "useless" to you, but N+1 get you something of great value, it's not true that the (N+1)th dollar has greater marginal utility than any of the other N dollars, because you need all those other dollars to buy the thing. In other words, the previous N dollars weren't actually useless: they enabled you to obtain the (N+1)th dollar. Without them, that (N+1)th dollar is just your first dollar.

TeMPOraL 11y ago
Sometimes there's a psychological difference though. Say you have $8 in your pocket, and there's a movie you like to see in the cinema nearby. The ticket costs $10. You know you won't get that $2 in a reasonable timeframe - maybe it's your only evening off, so even if you get some more cash tomorrow you won't have a chance to see the movie. Maybe you also don't feel like begging strangers for change. In this situation, you may find yourself wishing for those $2 very much, and after realizing you can't get them, you'll say "fuck it, I may as well spend my $8 on some pizza or beer" and then do so. Maybe that last $2 don't have greater marginal value than the $8 in your pocket, but that $8 loses its perceived value the moment you realize you won't get additional $2 in time. It's not a hypothetical situation, by the way. I've been in those several times in the past, and followed exactly the same pattern of emotional reasoning.
- pc86 11y ago
  Probably OT, but all things being equal the person that saves the $8 until next week's night off will probably end up in a better place in life than the person that gets a slice of pizza and a beer.

deleted 11y ago

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