<p>This seems like a homework question, so I'll just give hints.</p>

<p>By <a href="https://en.wikipedia.org/wiki/Quasilinear_utility" rel="nofollow noreferrer">definition</a>, a quasilinear utility has the form <span class="math-container">$u(x, y) = x + v(y)$</span> where <span class="math-container">$y$</span> is a vector of all other goods and <span class="math-container">$v(\cdot)$</span> is strictly concave. In this case, <span class="math-container">$x$</span> is called the <em>numeraire</em>.</p>

<ul>
<li>From utility maximization, what's the first order condition that relates <span class="math-container">$MU_x$</span>, <span class="math-container">$MU_y$</span>, <span class="math-container">$p_x$</span>, and <span class="math-container">$p_y$</span>? Write down the equation.</li>
<li>What's the utility gain from consuming one more unit of <span class="math-container">$x$</span>?</li>
</ul>

<p>You should be able to work things out from there.</p>

<h2>Edit</h2>

<p><span class="math-container">$MU_x$</span> will be constant... more precisely, <span class="math-container">$MU_x$</span> is always one (by definition).</p>

<p>You can then plug this into FOC and get that <span class="math-container">$MU_y = 1/z$</span>. where <span class="math-container">$z = p_x/p_y$</span> is simply how many <span class="math-container">$y$</span>'s you could buy with "additional amount of wealth equal to the cost of one unit of good 1 on all other goods".</p>

<p>Since one more unit of good <span class="math-container">$y$</span> will get you <span class="math-container">$1/z$</span>, you need (approximately) <span class="math-container">$z$</span> more of good <span class="math-container">$y$</span> to get one more unit of utility increase (which is the same as what you get when you increase <span class="math-container">$x$</span> by one unit).</p>

CC BY-SA 4.0
2019-10-30T19:47:22.107Z
How would you interpret the statement? (It is not a homework question. I just saw the statement and want to gain more understanding about it.)
Aqqqq
CC BY-SA 4.0
2019-10-30T20:00:07.963Z
I am not sure whether my answer is correct: the marginal utility of good x will be constant no matter how many good x have already been consumed (differentiating the utility function against x).
Aqqqq
CC BY-SA 4.0
2019-10-30T20:00:21.350Z
As for "one unit more of the numeraire good (good 1) give the same additional utility as spending an additional amount of wealth equal to the cost of one unit of good 1 on all other goods": From utility maximization, I can get $MU_x/p_x = MU_y/p_y$. Hence $MU_x = MU_y/p_y*p_x$     I am not sure whether it indeed reflect "one unit more of the numeraire good ...all other goods. Wouldn't it be applicable without the assumption of quasi-linear preference?
Aqqqq
CC BY-SA 4.0
2019-10-31T02:32:38.803Z
Please see if my edited answer helps.
Art
CC BY-SA 4.0
2019-11-03T19:02:51.393Z
Thank you for your answer. But I still think that since $MUx=MU_y/p_y∗p_x$, "one unit more of the numeraire good ...all other goods" is also applicable for general case without the assumption of quasi-linear preference (assumption of "quasi-linear preference" only contributes to the part "no matter how much unit of this good 1 have already been present in the consumption bundle"). Am I correct and if I am not, what mistake did I made in my reasoning?
Aqqqq
CC BY-SA 4.0
2019-11-03T19:03:13.370Z
Would it be also possible to explain the reason behind this property verbally without use of proof?
Aqqqq
CC BY-SA 4.0
2019-10-30T07:27:19.317Z
2019-10-31T02:33:16.817Z
2019-10-31T02:33:16.817Z
Art
<p>In case of quasi-linear preference, why would one unit more of the numeraire good (good 1) give the same additional utility as spending an additional amount of wealth equal to the cost of one unit of good 1 on all other goods no matter how much unit of this good 1 have already been present in the consumption bundle? How would one prove it? (Interpretation would also be welcome.)</p>

<p>It seems that it has something to do with the fact that utility maximization implies identical marginal utility per unit currency spent on each good.</p>

<microeconomics><utility><preferences><marginal>
A question about the property of quasi-linear preference
Aqqqq
# A question about the property of quasi-linear preference

(Asked by: username_0 on 2019-10-29)

In case of quasi-linear preference, why would one unit more of the numeraire good (good 1) give the same additional utility as spending an additional amount of wealth equal to the cost of one unit of good 1 on all other goods no matter how much unit of this good 1 have already been present in the consumption bundle? How would one prove it? (Interpretation would also be welcome.)

It seems that it has something to do with the fact that utility maximization implies identical marginal utility per unit currency spent on each good.

**Tags:** microeconomics, utility, preferences, marginal


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## 1 answers

### Answer by username_1 on 2019-10-30. Score: 2 | Accepted answer

This seems like a homework question, so I'll just give hints.

By [definition](https://en.wikipedia.org/wiki/Quasilinear_utility), a quasilinear utility has the form $u(x, y) = x + v(y)$ where $y$ is a vector of all other goods and $v(\cdot)$ is strictly concave. In this case, $x$ is called the *numeraire*.

* From utility maximization, what's the first order condition that relates $MU\_x$, $MU\_y$, $p\_x$, and $p\_y$? Write down the equation.
* What's the utility gain from consuming one more unit of $x$?

You should be able to work things out from there.

## Edit

$MU\_x$ will be constant... more precisely, $MU\_x$ is always one (by definition).

You can then plug this into FOC and get that $MU\_y = 1/z$. where $z = p\_x/p\_y$ is simply how many $y$'s you could buy with "additional amount of wealth equal to the cost of one unit of good 1 on all other goods".

Since one more unit of good $y$ will get you $1/z$, you need (approximately) $z$ more of good $y$ to get one more unit of utility increase (which is the same as what you get when you increase $x$ by one unit).

> **Comments:**
> **username_0**: How would you interpret the statement? (It is not a homework question. I just saw the statement and want to gain more understanding about it.)  
> **username_0**: I am not sure whether my answer is correct: the marginal utility of good x will be constant no matter how many good x have already been consumed (differentiating the utility function against x).  
> **username_0**: As for "one unit more of the numeraire good (good 1) give the same additional utility as spending an additional amount of wealth equal to the cost of one unit of good 1 on all other goods": From utility maximization, I can get $MU_x/p_x = MU_y/p_y$. Hence $MU_x = MU_y/p_y*p_x$     I am not sure whether it indeed reflect "one unit more of the numeraire good ...all other goods. Wouldn't it be applicable without the assumption of quasi-linear preference?  
> **username_1**: Please see if my edited answer helps.  
> **username_0**: Thank you for your answer. But I still think that since $MUx=MU_y/p_y∗p_x$, "one unit more of the numeraire good ...all other goods" is also applicable for general case without the assumption of quasi-linear preference (assumption of "quasi-linear preference" only contributes to the part "no matter how much unit of this good 1 have already been present in the consumption bundle"). Am I correct and if I am not, what mistake did I made in my reasoning?  
> **username_0**: Would it be also possible to explain the reason behind this property verbally without use of proof?  

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