The Law of Marginal Utility

Deutsche version: (not yet available)

Table of Content see: 

001 - Table of Content and Introduction

To the playlist of 'Man, Economy and State':

https://www.youtube.com/playlist?list=PLRJQAqVMwPhcoVCHESdfhaOeV3qvubEY2

Transcript:

Man, Economy and State 2009, chapter 1, pages 27-33

An actor has several similar goods which fulfil different ranked needs:

Sheets of paper

The most important set of paper for this actor is used for work related paperwork.

The second set of paper is used for writing household notes.

The final set of paper is used for practicing origami. Just for fun.

If for whatever reason paper supply would dry up by one set of paper, the actor would stop with origami, but still write notes and use paper for work.

This origami-set is the marginal unit of paper.

It is the unit which this actor would sacrifice to fulfil other paper related needs.

If supply drops further, this actor would sacrifice the notes-set next.

But this set is more important to the actor, thus the actor would accept a higher paper price to fulfil this need.

We have now learned all the bits for the law of marginal utility:

The greater the supply of a good, the lower the marginal utility; the smaller the supply, the higher the marginal utility.

Market prices are based on the interplay of marginal utilities of several human actors.

Thus high market prices signal to producers and investors, that there are probably unfulfilled needs.

This is effectively knowledge transfer without mind reading and central planning.

 

Support and Sources:

August Heinrich Barbarossa provides an Austrian view on the world. Videos will be released in English and German. Support August on Patreon: https://www.patreon.com/ahbarbarossa

 

Man, Economy and State, Murray Rothbard, 2nd Scholar's edition, Copyright 2009, Ludwig von Mises Institute, Auburn, Alabama: E-book and audio-book on mises.org

 

Image sources: https://commons.wikimedia.org/