marginalism
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Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.
~33 min read
Article
26 sectionsContents
- Main concepts
- Marginality
- Marginal use
- Marginal utility
- Quantified marginal utility
- Law of diminishing marginal utility
- Marginal rate of substitution
- Marginal cost
- Application to price theory
- Demand
- Supply
- Markets
- Paradox of water and diamonds
- History
- Proto-marginalist approaches
- Marginalists before the Revolution
- Marginal Revolution
- Second generation
- Marginal Revolution as a response to socialism
- Eclipse
- Revival
- Marxist criticism of marginalism
- Marxist adaptations to marginalism
- See also
- References
- External links
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.
Although the central concept of marginalism is that of marginal utility, marginalists, following the lead of Alfred Marshall, drew upon the idea of marginal physical productivity in explanation of cost. The neoclassical tradition that emerged from British marginalism abandoned the concept of utility and gave marginal rates of substitution a more fundamental role in analysis. Marginalism is an integral part of mainstream economic theory.