- First LawHermann Heinrich Gossen (1810–1859) – the law of saturation of needs. It says: as the need for a good is satisfied, its value decreases, or as the quantity of a good increases, its utility decreases. The transition to need saturation usually does not occur immediately, but gradually, as if in steps. The practical significance of Gossen's first law is that it reflects the relationship between a decrease in marginal utility and a decrease in demand (a decrease in the demand curve). The demand curve can be derived as the derivative of the marginal utility curve.
Second LawGossen's law of equalization of marginal utilities. According to this law, each participant in the exchange strives to achieve maximum profit by distributing his funds between various purchases. He expects to receive equal satisfaction from every amount of money spent on each item purchased.
To obtain maximum utility, the consumer distributes the quantities of goods consumed (for example, milk and bread) so that their marginal utility is equal to the same value.
Each participant in the exchange transaction, distributing his funds between various purchases, strives to achieve maximum benefits.
The law of price unity follows from the law of substitution of consumer goods. For the buyer, there is some kind of price limit, above which he will not purchase the product. For the seller, there is a certain lower price limit that he wants to receive and below which he does not want to fall.
Do almost every person have limited or unlimited needs? Everyone's needs are limitless. We want both, but can we always do it? It turns out that this is not always the case, because our incomes, unfortunately, are limited for the majority of the population.
Let's say you go to a buffet where they sell cake for 30 rubles. per piece, and a glass of tea costs 10 rubles. There are only 60 rubles in the student's wallet. You need to choose a set of goods that will give you the greatest satisfaction. How will you spend the money?
You can buy 2 cakes for all 60 rubles, but you will not get as much pleasure from the second cake as from the first. Because there is nothing to wash it down with, and eating dry cakes is too much of a burden on the body.
But there is a second option: instead of the second cake, you can buy 3 glasses of tea or two glasses of coffee. Thus, you increase the amount you receive overall utility. Why? Yes, because three glasses of tea or two glasses of coffee will bring much more satisfaction than a second helping of cake. But not every person is able to drink three glasses of tea. Therefore, we need to look for consumer equilibrium. Let's say, ask your parents not 60, but 80 rubles. for breakfast. Then you can buy two cakes and two glasses of tea. But you can limit yourself to 60 rubles.
In short, according to Gossen's 2nd law, the buyer must stop purchasing various goods at points, where the intensity of satisfying their needs becomes the same. If you have 60 rubles, then with noun. At prices, it is more profitable for you to buy 1 cake and 3 glasses of tea. Why? Yes, because such a set corresponds to the rule of maximizing utility per 1 ruble. student income. If the marginal utility of 1 cake is 120 yuan, and the marginal utility of a third glass of tea is 40 yuan, then this rule is written mathematically as follows:
MU of product A: Price of product A = MU of product B: Price of product B (1)
In our example, this ratio will look like this: 120: 30 = 40: 10 = 4 = 4.
With such a set, the total utility of the products purchased by the student will be the highest: 120 + 80 + 60 + 40 = 300 yut.
In conclusion, we conclude that a rational consumer, within a limited budget, makes his purchases in this way, so that every product purchased brings him same marginal utility proportional to the price of this product . In this case, the consumer receives maximum satisfaction of his needs with a limited budget.
table 2
A combination of two goods that maximizes utility for a budget of 60 rubles.
If someone has a budget twice as large, then the buyer can choose completely different, more expensive products for breakfast. But here too he unconsciously acts in the spirit of Gossen’s second law.
Formulation
Abnehmen des Grenznutzens (u=utility, Δu=marginal utility, q=quantity of goods consumed)
- Gossen's first law. When consumed sequentially, the utility of each subsequent unit of product is lower than the previous one.
- Gossen's second law. A simplified version is based on consideration of the subsistence economy of a person isolated from society. Given a certain number of different products, an individual during a given limited period of time can consume them in different combinations, one of which must be the most profitable, bringing maximum pleasure, which is achieved by establishing equality of marginal utilities of all products. The next degree of approximation takes into account the conditions of the commercial economy. The price of goods and the amount of money are the main factors limiting consumption. The optimal consumption option will be one in which equality is achieved between the marginal utilities resulting from the last monetary units spent on the purchase of individual goods.
The second law was subsequently widely used by the mathematical school to explain the phenomena of demand and pricing.
The law is formulated on the assumption that utility is at least weakly quantifiable, and thus at the equilibrium point the subject will distribute his expenses in such a way that the ratio of marginal utility to price (marginal cost of acquisition, English. marginal cost of acquisition) will be the same for all goods and economic services:
WhereCriticism
see also
Sources
- Gossen's laws- article from the Great Soviet Encyclopedia
- Blyumin I. G., Criticism of bourgeois political economy, vol. 1, M., 1962
- Zhuravitsky S., Mathematical school in political economy, M.
- Gide S. and Rist S., History of economic doctrines, (translated from French), M., 1918
Notes
Wikimedia Foundation.
2010.
See what “Gossen’s Laws” are in other dictionaries: GOSSIN'S LAWS - – laws of psychological assessment of goods. The first Z. G. states that as needs are satisfied, the degree of saturation increases, and the value of specific utility decreases. The second Z.G. states that with a limited supply of a good, it exists... ...
Economics from A to Z: Thematic Guide
Gossen's laws Gossen's laws are a mathematical development of the main principles of the theory of marginal utility, the general foundations of theories of subjective value. According to the Prussian economist G. Gossen, human behavior is determined by the desire to maximize utility or... ... Wikipedia - 1. The statement that the marginal utility of any good decreases as that good is consumed. 2. The conclusion, which G. Gossen himself formulated as follows: “A person maximizes his utility when he distributes the available... ...
Gossen's laws- 1. The statement that the marginal utility of any good decreases as that good is consumed. 2. The conclusion that G. Gossen himself formulated as follows: “A person maximizes his utility when he distributes the money he has... ... Technical Translator's Guide
- (named after G. G. Gossen) mathematical development of the main principles of the bourgeois vulgar theory of marginal utility, the general foundations of theories of subjective value. Gossen’s theoretical constructions are based on the anti-scientific position that... Great Soviet Encyclopedia
GOSSIN'S LAW, FIRST- a marginalist law, according to which, in the course of individual consumption of a certain good, the utility of each subsequent unit of it decreases and upon saturation (in the limiting case) reaches zero. Gossen's first and second laws formed the basis of... ... Large economic dictionary
Hermann Heinrich Gossen Date of birth: September 7, 1810 (1810 09 07) Place of birth: Duren Date of death: February 13 ... Wikipedia
Hermann Heinrich Gossen (German Hermann Heinrich Gossen; September 7, 1810, Düren February 13, 1858, Cologne) German (Prussian) economist, predecessor of the mathematical and Austrian schools in economics. Gossen was born in Düren when it was occupied... ... Wikipedia
Hermann Heinrich Gossen (German Hermann Heinrich Gossen; September 7, 1810, Düren February 13, 1858, Cologne) German (Prussian) economist, predecessor of the mathematical and Austrian schools in economics. Gossen was born in Düren when it was occupied... ... Wikipedia
Gossen's laws Created by the German economist Hermann Gossen (1810-1858), the three relevant laws of economics are related to diminishing marginal utility, marginal acquisition cost, and scarcity.
Gossen was the first to explain the law of diminishing marginal utility or Gossen's first law based on general observations of human behavior. This law confirms that the quantity of the same pleasure continuously decreases as it progresses without interruption in this pleasure until satisfaction is achieved.
The second law, the law of equal marginal utility, explains consumer behavior when he has limited resources but unlimited desires.
The basic problem in economics is that human desires are limitless, but there are not enough resources to satisfy all human desires. Therefore, a rational person tries to optimize the scarce resources available to achieve maximum satisfaction.
The third law relates to the economic value of products, which is the result of previous shortages.
Gossen tried to find each of these laws in all types of economic activity.
- 1 Gossen's first law
- 1.1 Example
- 2 Gossen's second law
- 2.1 Example
- 3 Gossen's third law
- 4 Links
Gossen's first law
It is known as the law of diminishing marginal utility. It has been found that when a person consumes more than one food, overall utility increases at a decreasing rate.
However, after a certain stage, total utility also begins to decrease and marginal utility becomes negative. This means that the person no longer needs the product.
That is, a person’s desire for a particular product is saturated when he consumes more and more.
example
Suppose you are hungry and you have oranges. Eating the first orange provides many benefits. The marginal utility of the second orange is, of course, less than that of the first.
Likewise, the marginal utility of the third orange is less than that of the second, etc.
After a certain stage marginal utility becomes zero and after this stage it becomes negative. This is because it becomes saturated as more and more oranges are consumed.
To understand this better, you can see Table 1. The hypothetical numbers represent the marginal utility of consuming oranges for a person.
Overall usefulness
Total utility is obtained by adding the marginal utility of each unit consumed by orange. According to Table 1, the total utility of the first six oranges is 21 (21 = 6 + 5 + 4 + 3 + 2 + 1).
Marginal utility
Limit nth utility units of output is the difference between total utility nth unit and the total utility of a unit of (n-1) product. UMn = UTn - UT (n-1) where,
UMn = marginal utility of the nth unit.
UTn = Total utility of the nth unit.
UT(n-1) = total utility of unit (n-1).
In the example of Table 1, the marginal utility of the fourth orange is UM4 = UT4-UT3 = 18-15 = 3..
The following figure shows the trajectories of the total utility and marginal utility curves in detail.
The overall utility curve initially increases and, after a certain stage, begins to decrease. At this stage, the marginal utility curve enters the negative zone.
Gossen's second law
The second law states that each person will spend his money on different products, so that the sum of all pleasures is equal.
Thus, Gossen explained that maximum pleasure will be achieved with a constant level of satisfaction. Gossen's second law is known as the law of equal utility.
Let's say a person owns $200. The law explains how a person distributes $200 among different desires in order to maximize his satisfaction.
The point at which consumer satisfaction is maximum with given resources is known as consumer equilibrium.
example
Suppose there are two products X and Y. The consumption resource is $8. The unit price of item X is $1. The unit price of item Y is $1.
The consumer spends his $8 to buy product X. Since the unit price of product X is $1, he can buy 8 units.
Table 2 shows the marginal utility of each unit of product X. Since the law is based on the concept of diminishing marginal utility, it decreases with each subsequent unit.
Now consider that the consumer spends his $8 to buy product Y. Table 3 shows the marginal utility of each unit of product Y.
If a consumer plans to allocate his $8 between products X and Y, Table 4 shows how the consumer spends his income on both products.
Application of the Second Law
Since the first unit of Product X yields the largest profit (20), she spends the first dollar on X. The second dollar also goes to Product X since it awards 18, the second highest.
Both the first unit of good Y and the third unit of good X offer the same amount of utility. The consumer chooses to buy product Y because he has already spent two dollars on product X.
Likewise, the fourth dollar is spent on X, the fifth dollar on Y, the sixth dollar on X, the seventh dollar on Y, and the eighth dollar on X.
Thus, the consumer buys 5 units of good X and 3 units of good Y. That is, 5 units of good X and 3 units of good Y leave him with the best amount of useful output.
According to the law of equivalent marginal utility, the consumer is in equilibrium at this moment, experiencing maximum satisfaction. To understand this, you can calculate the overall healthfulness of the foods you consume.
Total utility = UTx + UTy = (20 + 18 + 16 + 14 + 12) + (16 + 14 + 12) = 122 Any other combination of products will leave the customer with less total utility.
Gossen's third law
This law indicates that scarcity is a necessary prerequisite for the existence of economic value. That is, a product has value only when its demand exceeds supply.
Using Gossen's logic, since marginal utility decreases with consumption, a product can only have positive marginal utility or "value" if the available supply is less than what is needed to ensure saturation. Otherwise, the desire will be saturated and, therefore, its value will be zero.
Gossen's arguments about value are based on two previous laws. According to him, cost is a relative term. It depends on the relationship between object and subject.
As the quantity increases, the value of each aggregate unit decreases until it becomes zero.
links
- Kirti Sheils (2018). The first and second laws of human pleasure. Economic discussion. Taken from: economicsdiscussion.net.
- Sundaram Ponnusamy (2014). Law of Diminishing Marginal Utility or Gossen's First Law. Owlcation. Taken from: owlcation.com.
- Sundaram Ponnusamy (2016). The law of equal utility or Gossen's second law. Owlcation. Taken from: owlcation.com.
- Concepts of Economics (2015). Law of Diminishing Marginal Utility. Taken from: economicsconcepts.com.
- Wikipedia, the free encyclopedia (2018). Gossen's laws. Taken from: en.wikipedia.org.
As already mentioned, after the “opening salvos” of the marginalist revolution, almost simultaneously issued in three different countries, an anticipation of the basic principles of limit analysis was discovered and recognized in the forgotten work of G. G. Gossen with the long title “Development of the laws of human communication and the rules of human activity arising from them” (1854). Herman Heinrich Gossen(1810-1858), who graduated from the University of Bonn with a degree in finance and served as a minor official, and then unsuccessfully tried his hand at private enterprise, did not achieve the success he expected in the theoretical field, giving his treatise a significance similar to the achievement of Copernicus in astronomy. Disappointed by the public's indifference after the book's release, Gossen bought and destroyed most circulation and died soon after. The fame of a theorist who has no equal in originality in the entire history of economic thought (despite the fact that his book is “poorly structured... and written in clumsy and often absurd language”1) came to Gossen posthumously. W. S. Jevons and L. Walras were particularly impressed by Gossen's diagrams, one of which showed the difference between the diminishing utility curve and the demand curve, and the other graphically depicted the alignment of the marginal burden of labor and the marginal utility of the product of this labor. Economists of the Austrian school who did not recognize graphs proposed to call Gossen's 1st and 2nd laws“the law of diminishing marginal utility” and the “law of weighted marginal utilities”, formulated by Gossen himself as follows:
- 1) the amount of the same pleasure steadily decreases if we continuously continue to consume the good that provides this pleasure until, finally, saturation occurs (Gossen's first law);
- 2) a person who can freely choose between many pleasures, but who does not have enough time to provide them all for himself in full, must guarantee himself all of them partially, namely in such a ratio that the value of each individual pleasure at the moment, when the process of creating this pleasure is interrupted, for all pleasures it would remain the same (Gossen's second law).
In modern formulations Gossen's 2nd law it is emphasized that:
- - maximization of utility from the consumption of a given set of goods over a limited period of time is achieved if the goods are consumed in quantities at which the marginal utility of each of all consumed goods will be equal to the same value;
- - pleasure maximization is achieved if cash is distributed among different pleasures in such a way that the last unit of money spent on each pleasure brings the same amount of pleasure.
The representative of the neo-Austrian school F. Hayek (see Chapter 26) proposed to highlight more Gossen's 3rd law. Although the term did not catch on, Gossen’s own formulation deserves attention: “...To ensure the maximum amount of pleasure obtained from life, a person must distribute his time and energy in such a way that for each good the value of the last atom created is equal to the amount of human effort required, if he would create this atom at the last moment of application of his forces."
This conclusion was made by Gossen at the end of the classification of goods, in which Gossen acted as the immediate predecessor of the Austrian school. He divided all benefits into three categories:
- 1) goods that directly serve to create any pleasure;
- 2) “second class items”, which, before they bring pleasure, must be supplemented with something or undergo changes as a result of labor - tools, materials, raw materials, semi-finished products;
- 3) “third class items”, which themselves never become goods or their components, but are used for the production of goods or their parts; Gossen included labor in this class.