Developing theories of aggregate demand-utility maximization

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1. Francis Edgeworth is best known for his work on developing the theories of aggregate demand and utility maximization that makes all parties in a complex economy better off without harming any.

2. Edgeworth's mathematical description of how consumer preferences between goods change "at the margin," or depending on how much there is available for purchase in the market, were instrumental in laying the groundwork for modern microeconomics and game theory.

3. Amartya Sen, a prominent 20th century economist, criticized the marginalist approach to economic theory and policy.

4. In particular, Sen rejected the utilitarian approach to welfare economics that was popularized by Edgeworth, arguing that it is foolish to assume that people act rationally all of the time, even when trying to pursue their self-interest.

5. Further, Sen shows that the marginalist approach to preferences incompletely accounts for the role that certain motivations, like commitments and sympathies, have in shaping human preferences.

6. Sen called this emphasis on deeper motivations the "capabilities approach," according to which people most fully maximize their good when they exercise their highest and most deeply held capabilities.

Reference no: EM133986585

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