Simple statistical fallacy–How many people did you NOT write traffic tickets for (i.e. didn’t break the law)? Add in all those people, and then see if “disregard of the social contract” is the norm.

If I can save an hour on my weekly commute by speeding and I figure I will only have a 2% chance of getting caught and fined $100, the $2 per week average I spend on speeding tickets might be more than worth it.

Well, hope not to have been too confusing here. (Please, have in mind I’m a beginner in these issues). Thanks.

I realize that the scope of this piece is limited to showing that the substitution and income effects of a price change can be conceptualized through a discrete linear (i.e. one-dimensional) value scale as well as a continuous model that decomposes this value scale into indifference curves and budget constraints. By accepting the existence of continuous cardinal utility I would not be surprised if each approach were found to be mathematically equivalent, much the same as deciding whether to use rectilinear or spherical coordinates to determine a position in space. Following the maxim that “a picture (or diagram) is worth a thousand words,” the economics of pedagogy would naturally favor the use of indifference curves in a graphical representation.

I am sure you know that Rothbard’s objection to the indifference curve description goes well beyond the “humans don’t decide that way” statement. His first objection would be that value scales must be ordinal rather than cardinal. By itself this objection implies that an indifference-budget decomposition of the one’s value scale is impossible since the concept of “equal utility” could not exist. His second objection would be that humans value things only in discrete units of perceptible difference, and so even two supposed cardinal utility functions (and their associated indifference curve) would not possess continuous first derivatives. Hence the concept of “tangent to the indifference curve” would not have the intended meaning. The graphical representation merely provides the illusion that an optimal combination of goods is being found by mutual determination.

It should also be obvious that the apparent advantage of the graphical approach diminishes rapidly as the number of goods under consideration grows. For the general problem of N goods the indifference “curve” would become an N-dimensional hyper-surface, whereas the linear value scale approach can easily accommodate any number of goods.

The final pedagogical question becomes: does the limited advantage of displaying the substitution and income effects graphically outweigh the glossing over of the fundamental principles emphasized by the Austrian school?

Anyway – Thanks!

That’s fine; My claim was ceteris paribus.

You write:

I would say that individuals attach utility or importance to material objects rather than that the objects supply utility. Since the utility that individuals attach to things depends on the individual perception on how these things can be used to meet one’s ends, one will not attach the same utility to a $1 orange and a $2 orange.

This is not true in all cases. This is only true if the particular store the individual goes to sells only $2 oranges and the individual knows that another store sells the same orange at $1. Then, we are not talking about the utility of just the orange, but the utility of the orange weighed in with the attached cost of having to go to another store just to save a dollar. In other words, we are also talking about opportunity cost. But, if a $1 and a $2 orange were sold side by side, and both fulfilled the same utility, I’m sure most individuals would opt for the former, even if they could easily afford the latter.

What if the money price of oranges was $30,000 per orange instead of $1? Suppose you came to a store and found two physically identical (inside and outside, in all possible respects) oranges – one at $1 and the other at $30,000. Which orange would you use to meet your end – physical survival on a yearly income of, say, $30,000? If you attach the same utility to both, you would not care which one you pick.