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The concept of separate needs in cardinal utility theory: the leisure-consumption choice

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  • Miller, Anne

Abstract

Two propositions are required to introduce separate needs into utility theory. Firstly, the shape of the utility function must represent the different stages of fulfilment of a need as experienced by a consumer: deprivation, subsistence, sufficiency, satiation, surfeit. The second proposes weak separability for the utilities of commodities fulfilling the same need, and strong separability for different needs. A utility function, formed from the addition of two leaning-S-shaped, bounded cardinal utilities with satiation at infinity, is used to create an indifference curve map. Functional forms for the leisure-consumption choice are derived and their diagrams drawn – labour supply, consumption demand and their Engels curves. The main outcomes are: * Concave- and convex-to-the-origin indifference curves, (the former defining ‘dysfunctional poverty), are separated by a straight-line indifference curve, BA, (the slope of which is defined by relative-intensities-of-need), identifiable as an absolute poverty line. It leads to disequilibrium in the derived functional forms. * Each commodity responds as superior, inferior and even Giffen, in different areas of the convex-to-the-origin indifference curves. Their boundaries are reflected in envelope curves in the derived functional form diagrams. * An individual’s labour supply responses vary markedly according to three levels of unearned consumption/income, representing dysfunctional poverty (involuntary unemployment), functional poverty (working, but deprived of either leisure or consumption) and sufficiency. * The reservation wage is a U-shaped function of endowments of unearned consumption. The functional form’s parameters have meaningful psychological interpretations. The concept of separate needs in utility offers a new dimension in labour supply theory.

Suggested Citation

  • Miller, Anne, 2024. "The concept of separate needs in cardinal utility theory: the leisure-consumption choice," MPRA Paper 121671, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121671
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    1. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March.
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    3. Kohli, Ulrich, 1985. "Inverse demand and anti-giffen goods," European Economic Review, Elsevier, vol. 27(3), pages 397-404.
    4. Dougan, William R, 1982. "Giffen Goods and the Law of Demand," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 809-815, August.
    5. Davies, John E, 1994. "Giffen Goods, the Survival Imperative, and the Irish Potato Culture," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 547-565, June.
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    1. Miller, Anne, 2024. "A note about loss aversion in terms of bounded cardinal utility theory," MPRA Paper 121997, University Library of Munich, Germany.

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    More about this item

    Keywords

    leaning-S-shaped utility; additive utilities; absolute poverty line; disequilibrium; Giffen good; envelope curve; involuntary unemployment; functional poverty; reservation wage;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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