More is Always Better (The Non-Satation Assumption)

Have you heard the saying “More isn’t always better” before? That’s not true according to economists. An underlying assumption in economics is that, for goods (as opposed to bads), more is always better.

Why is this true?  There are two things we can consider: (1) if something brings you utility, you want more of it and (2) once it stops bringing you utility (likely because of diminishing marginal utility) you can sell it.

Utility = Happiness/Satisfaction Derived from a Good or Service

If one item gives you utility, more will give you more utility. If one pen gives you a certain amount of utility, two pens will give you more (maybe double), and three pens will give you even more (maybe triple). You can use one pen and then use the others in order as each pen runs out.

Let’s discuss another example: burgers. If one burger gives you utility, two will give you more (although probably not double like with the pens), and three will give you even more (but maybe not if you are already full). With burgers things are a little different aren’t they? One burger may be amazing, two burgers may be great, but by the third or fourth burger, you might be full. That third burger may give you a lot less utility than the first because you are already full. The fourth burger might actually have negative utility as it causes a stomach ache. This is an example of a central principle in economics called diminishing marginal utility.

Diminishing marginal returns can occur with the pen example above also, but it would just occur much more slowly. If you have 10 pens, you are still doing fine. You can put them away for use later on. But what if someone gave you 10,000 pens? Then the 10,000th pen may actually have a negative utility because you no longer have any room to store it. At some point the pens become a burden.

So how can we say that more is always better if we have diminishing marginal utility, with some cases more extreme than others? We can say that because we can always sell the item should it no longer provide us with positive utility (or at least we assume we can sell it). For example, we can sell that fourth burger. We can also do something else with it (eg. give it to a friend or a homeless person) that gives us some kind of utility. The same is true with the pens. We can start to sell the pens at the point where utility is no longer possible.

So, the old saying that “More isn’t always better” isn’t really true in the world of economics. Assuming that more IS always better (non-satiation) is an underlying assumption of economics that allows for further theory creation and model development.

Tags: economics

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