Today in class we were going over a quiz. One question involved an indifference map of cereal and milk. The indifference curves (three were pictured) were right-angled, indicating milk and cereal are perfect complements. Various points on the three curves were labeled, and the question asked us to select the points you would never pick not matter what the price level. And lots of people got confused by this, and instead tried to select the infeasible points based on the budget constraint line that was also part of the graph.

What the question was actually asking was for the labeled points which weren’t on the vertex of the indifference curves, because the vertex points were the only ones of optimal choice. (If you only use a cup of a cereal when a cup of milk is available to you and vice versa, units of one good are only worth anything to you insofar as you have an equal amount of units of the complementary good.)

Anyway, we were going over this problem, and one guy asked a question which indicated that he was confusing quantity and utility. That is, he got the answer wrong because he thought the “worst” point was the one with the smallest quantity of total goods, because of the assumption of non-satiation — that we would always rather have more than less. The trouble is that the “more” applies to utility, not number of luxury cars, or wads of cas.

I feel like this is why economics often gets a bad rap — because it seems like economic theory is all about maximizing profits and trying to consume the most possible. This makes it seem both narrowly applicable and depressing. But if you think about economic theory as a way of modeling how we all maximize utility in our daily life, it’s a different story. Non-satiation is a valid assumption in regards to utility. Everyone would rather be happier. But that doesn’t doesn’t mean because we have non-satiation of utility that we have non-satiation of anything else. In fact, utility is the only thing I can think of where it is realistic to assume non-satiation. Everything else — food, money, luxury cars, air, water — has diminishing marginal utility. The only reason that people are more greedy about money (hoard it up, want more than is necessary to live) is because they have tied the amount of money they have to their happiness and wellbeing — they have equated money and utility — which is fallacious.