Individuals in the foregoing analysis aim to maximize their utility, given that they have a fixed budget. Note that this behavioural assumption does not rule out the possibility that these same individuals may be philanthropic – that is they get utility from the act of giving to their favourite charity or the United Way or Centre-aide. To see this suppose that donations give utility to the individual in question – she gets a ‘warm glow’ feeling as a result of giving, which is to say she gets utility from the activity. There is no reason why we cannot put charitable donations on one axis and some other good or combination of goods on the remaining axis.
Of course, not everyone may get utility from giving, and those individuals who do derive utility may find that their marginal utility from increased donations declines quickly – while giving may generate utility it also competes with the utility obtainable from own consumption, and these utilities both come from the same budget. In equilibrium it must be the case that the marginal utility from each good or activity divided by its price must be equal. Hence, if charitable donations were a third ‘good’ to generate utility, Equation 6.2 would be rewritten as
where the subscript ‘cd’ denotes charitable donations. Evidently the price of a dollar of donations is one dollar and so the denominator in the final term must equal 1.
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