The Confusing Link between Utility and Demand

8 Pages Posted: 28 Jun 2014 Last revised: 26 Aug 2014

See all articles by Hak Choi

Hak Choi

Chienkuo Technology University - Department of International Business; Chung-Hua Institution for Economic Research

Date Written: June 26, 2014

Abstract

This paper proves that utility theory derives inconsistent, ambiguous and wrong demand function. Instead, it proves that if a product is contributing to utility or profit, the relation with its price must be positive, and that the proper demand relation is one between a burdening product and its price.

When Walras (1874/1954) derives his general equilibrium theory, he uses a demand curve as the starting point. To retrace the demand curve, he invokes the utility theory. Marshall (1907/1948) uses marginal utility to derive his demand curve and consumers’ surplus, and the price associated with the marginal utility is called willingness to pay. Although many people (Kenneth J. Arrow, 1950, William J. Baumol, 1946, Charles Kennedy, 1963, G.H. Kramer, 1973, Ian Malcolm David Little, 1957, Dennis Mueller, 1979, Lionel Robbins, 1938, Paul A. Samuelson, 1956) have objected utility theory, using it to derive the law of demand seems the only way out. This paper will prove that such derived result may not look like a demand function, and will offer an alternative theory to reveal that the relation between a benefiting, or utility enhancing, product and its price is actually positive.

Keywords: Utility, Demand, Supply

JEL Classification: B13

Suggested Citation

Choi, Hak, The Confusing Link between Utility and Demand (June 26, 2014). Available at SSRN: https://ssrn.com/abstract=2459746 or http://dx.doi.org/10.2139/ssrn.2459746

Hak Choi (Contact Author)

Chienkuo Technology University - Department of International Business ( email )

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Taiwan
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Chung-Hua Institution for Economic Research ( email )

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Taipei
Taiwan

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