Preference and Marginal Benefit

Thinking back to the previous chapter, we remember that

The benefit from a quantity of one good, such as one wing, is the market value of the goods the person would willingly give up to get the quantity, such as ten fries.
The marginal benefit of one more unit is the market value of the quantity of other goods the person would give up to get that one more unit.
The optimal spending on the good is just enough so that the marginal benefit is equal to the price, so
The marginal benefit curve is the demand curve.

Using the preference and indifference curve approach, we have just learned that optimal spending corresponds to
1. MRS= p_wings/p_fries
where MRS is the quantity of fries the person would willingly give up to get one more wing and p_wings/p_fries is the relative price of wings in terms of fries. Doing a little algebra, equation 1 is the same as
2. p_wings=p_fries*MRS
Since MRS is the quantity of fries our consumer would give up to get 1 more wing, and p_fries is the price of fries, it follows that p_fries*MRS is the market value of the goods the consumer would give up to get one more wing -- that is, p_fries*MRS is the marginal benefit from wings.

So equation 1 is just the equimarginal principle MB=p in a slightly different form.

This illustrates how we can get the marginal benefit curve, and thus the individual demand curve, from the preference approach. This is the approach usually used in more advanced microeconomics, because it has two advantages over the marginal utility approach.

It is more credible, since we don't have to believe that satisfaction can be measured with a single number
It has other applications that are not obvious from the utility approach.

I will finish the chapter with two of these applications, one pretty easy and the other one -- I'm being honest with you here -- nastily complicated.
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Inflation