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How does a fair distribution of goods
and services increase society's satisfation? Since it is
difficult for us to agree on a definition of "fairness", let
me see if I can come up with an extreme example on which we
can all agree. What if President Trump owned everything? I
mean EVERYTHING - all the land, all the buildings, all the
food, all the clothes all the cars, -- everything in the
country. Therefore, the rest of us own nothing. We are
homeless, starving, and naked. Not a pretty picture, but I
think we can all agree that this is NOT FAIR (not
equitable)?
Now, let's say that President Trump
gives us each a pair of pants. We should be able to agree
that this is MORE FAIR, more equitable. So what happens to
society's satisfaction when we go from NOT FAIR to MORE
FAIR? By "society" I mean all of us, including President
Trump. The 300 million of us who received the pants are more
satisfied since each of us has a pair of pants, but
President Trump is less satisfied because he has 300 million
fewer pairs of pants.
So what happens to society's TOTAL
satisfaction? "Society" is us and Trump. It depends on HOW
MUCH happier we are and HOW MUCH less happy President Trump
is. This brings us to the Law of Diminishing Marginal
Utility (you may want to look this up in the index of your
textbook).
Utility is the reason we consume a
good or service. You might call it the satisfaction that we
get when we consume something. I get satisfaction (utility)
when I drive my boat. I get utility (satisfaction) when I go
to the dentist.
"Marginal" means EXTRA or ADDITIONAL.
So if I drive my boat a second time I get some additional
(marginal) utility.
According to the law of diminishing
marginal utility, the EXTRA (not the total) utility
diminishes for each additional unit consumed. The first time
I drive my boat in the spring I really enjoy it. But after a
few weekends of boating it doesn't give me as much
additional satisfaction as the first time. I still go
boating. My total utility still goes up. But the MARGINAL
(extra) utility I get from one more day goes
down.
Back to the President Trump Example.
Since we start with no pants, the FIRST PAIR we get from
President Trump gives us A LOT of utility (satisfaction).
But, since President Trump STILL HAS BILLIONS of pairs of
pants left, giving us 300 million causes his utility
(satisfaction) to go down only A LITTLE. Therefore, when we
went from NOT FAIR to MORE FAIR we gained more satisfaction
than Trump lost. Overall, a more fair distribution of pants
caused society's total utility (remember, "society" includes
all of us AND President Trump ) to increase.
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