115
See also: The paradox of value 63 ■ The labor theory of value 106–07 ■ Supply
and demand 108–13 ■ Risk and uncertainty 162–63
INDUSTRIAL AND ECONOMIC REVOLUTIONS
along with supply, helps to
determine the equilibrium or
“natural” price of a chocolate.
There are many notable
exceptions to the law of DMU, such
as finding the last piece of a puzzle,
which is very satisfying. Addictive
goods, such as drugs or alcohol,
also seem to be exceptions—the
more they are consumed the more
they are enjoyed. The principle also
makes certain assumptions, such
as “consumption should be
continuous.” Eating a whole box of
chocolates at one time, for instance,
is more likely to demonstrate the
principle of DMU than eating them
spaced out over a day.
Positive contributions
DMU has important applications,
not least in justifying a more equal
distribution of income to create
greater welfare for society. If the
government was to take $1 from a
very wealthy person and give it to
a very poor person, the total utility
of society should increase.
Utility theory has been
extended to situations in which
individuals have to make decisions
in the face of uncertainty and risk.
In this case they make decisions
on the basis of their preferences
over goods and their assessments
of the probability of different
outcomes. In the 1950s the US
mathematician Leonard J Savage
showed how different people make
different choices—decisions are
affected not only by the different
levels of utility people attach to
commodities, but also by their
comfort with risk: risk-averse
people make choices that minimize
the level of risk they face. ■William Jevons
Born in Liverpool, England, in
1835, William Jevons was the
son of an iron merchant. He
developed an interest in
economics from his father,
who wrote about legal and
economic matters. In 1855, his
father’s firm collapsed, and
money worries forced William
to cut short his study of natural
sciences at University College
London (UCL) and work in
Australia as an analyst. Five
years later he returned to UCL
and completed his studies.
In 1863, Jevons became a
tutor in Manchester, where he
met and married Harriet Taylor.
The family moved to London
in 1876, when Jevons took a
professorship at UCL. Despite
struggling with ill-health, he
was a prolific and important
writer in the fields of economics
and logic. He is famous for
creating a logic piano, an early
mechanical computer that
could analyze the truthfulness
of an argument. He accidentally
drowned in 1882, aged only 47.Key works1865 The Coal Question
1871 The Theory of Political
Economy
1874 Principles of SciencePRICEQUANTITY OF CHOCOLATE DEMANDEDThe first few units
of chocolate can be
sold for a higher price
because they give lots
of utility (satisfaction).Later units of chocolate
(eaten within a single
sitting) have lower
prices because they
only give small
increases in utility.The concept of diminishing marginal
utility is evident in the inverse relationship
of supply and demand. The more of a product
an individual has, the less he or she is
prepared to pay for each unit of it.
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