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econ434notes18 - basics of the theory of marginal...

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History of Economic Doctrines Lecture 18 Neoclassical Economics II Hermann Heinrich von Gössen H.H. von Gössen [1810-1858], in his Development of the Laws of Human Relationships (1854), claimed that relative price can be better explained by the forces of marginal utility. Gössen’s First Law – idea of diminishing marginal utility Gössen’s Second Law – consumers maximize their total utility when MU A /P A =MU B /P B =MU C /P C Gössen’s Third Law – a good only has value when its demand exceeds its supply Johann Heinrich von Thünen Being a landlord, J.H. von Thünen [1780-1850] applied marginal analysis to develop some
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Unformatted text preview: basics of the theory of marginal productivity in his model of agricultural land. In the various editions of his The Isolated State (1826-1863), von Thünen concluded that, holding yield constant, the amount farmers willing to pay for a piece of land falls with increasing distance from the market. Thus, location determines rent. (Note: August Losch also worked on the economics of location and concluded that the distance-minimizing geometric shape of the territories most firms control when concentrated in a high traffic area for business is hexagonal.)...
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