Saturday, January 14, 2012

Can we deduce supply and demand curves

Can we deduce the the supply and demand curves in terms of opportunity cost assuming only declining marginal utility of consumption? (I.e. without assuming increasing marginal labor cost of production.)

I think it can (and perhaps it's already been done), but I haven't seen it done and I don't think I yet have all the right mathematical tools to derive it. Perhaps a reader who has better math than me could help?

Declining marginal utility of consumption means basically that to obtain the first widget, which takes three hours* to produce, I might forego the last doodad, which takes one hour to produce. To obtain the second widget I will not, however, forego the second-to-last doodad, but I might forego the last thingamabob, which takes two hours to produce.

*of abstract labor time

Given fixed marginal labor time of supply (it takes x hours to produce one more of any good at any quantity) but declining marginal utility of consumption, what is the overall equilibrium price of each good in an economy?

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