Menger went on to accomplish a radical break with tradition: a thoroughly individualistic view of humanity and of the world. FULL ARTICLE by Eugen-Maria Schulak and Herbert Unterköfler
Source link: http://archive.mises.org/16554/the-discovery-of-the-self-the-theory-of-subjective-value/
The Discovery of the Self: The Theory of Subjective Value
Previous post: The Balanced-Budget Question
Next post: Three More Attacks on Civilization
{ 11 comments }
Yet still the majority of people are looking for the fair price. Democracy is a monster that is fueled by popular mislead opinion and not what is right.
Does the theory of marginal utility still work when the goods on offer are intangibles?
Yeah, I’m curious as to how prices are set for, say, eBooks and other items whose supplies are in effect infinitely large.
The economic laws that deal with the costs of digital goods are not special. Distribution of ebooks is not *entirely* free, and never will be. There’s the electricity, the cost of running the servers, the bandwidth taken up by the payload, etc. Furthermore the volume of them available is limited by the extent of storage technology. The monetary price on the consumer’s end may be $0 but this doesn’t mean nothing is given up in order to have it.
That said, the prices of the modern digital media market are not the equilibrium prices: I’m willing to wager that the prices here are the most inflated prices of any market that’s ever existed.
Sorry, please ignore my last sentence (in my comment below)… accidentally had that still at the bottom of my reply when I hit “submit”.
I don’t see how it changes significantly unless there were changes to IP laws – but perhaps I don’t understand your question properly?
The marginal utility of a good refers to an individual’s valuation of the good’s utility (at its margin). In the case of an eBook where owning three or even 300 of the same book is of no more utility than owning one, I think the marginal part of marginal utility essentially becomes redundant and it really just depends its utility. That is, they’ll be willing to pay whatever price for an eBook that is consistent with their valuation of the utility it will provide them with.
The suppliers of the book will set the price based upon what they think the market will bear in a manner to maximise their profits. The cost of producing extra units of an eBook drops to an almost neglible amount and this is taken into account when setting their price. Lets say it costs me $10,000 to produce 100 ebooks (unit cost = $100) and it costs me $12,000 to produce 12,000 ebooks (unit cost = $1) – in the first scenario my selling price needs to be $100 + profit, let’s say I choose $140 per book and I then make $4000 profit. However should I set my price at $20 per book with the aim that I’ll sell 12,000 books I now make $228,000 profit ($19 x 12,000). Of course in the real world it will be impossible to know up front how many we’ll sell at any given price and it is the job of the entrepeneur to forecast such things. The price can also start high and then it would pay to progressively drop it until I sell more and more (given the additional unit cost ends up so low).
The entrepeneur would have access to info that could help them in this forecast, for example, how many units of an ebook with similar appeal have been sold at a given price. It is just a game of forecasting and then profit maximisation (sounds simple but obviously forecasting can and is in many cases wildly wrong).
Don’t know it that addresses your question or not but hopefully it is helpful.
Your comment seems to imply that since costs of production for additional units becomes so low to the supplier that
That’s a public good
There is a lot about that
I am referring to choosing between say two intangibles.
To simplify it, think of choosing between a banana and a cookie.
There is a microeconomic theory for that; consumer preference combined with a price ratio/income constraint.
Now think about choosing between an intangible banana and and an intangible cookie.
Does the theory that works for tangible bananas and tangible cookies still work?
There can be only three possible answers: yes, no and perhaps/sometimes.
My answer is no.
But if I am wrong, why?
Are These Painful Economic Times Pregnant With Hope?
Two interesting points: contact with the real world outside of academia was an essential ingredient in his discovery; and, the dire economic conditions triggered interest in his discovery.
Conclusion: The educational outreach of the Mises Institute and the widening exposure of searching minds to Austrian economics during these truly cataclysmic economic times bodes well for the advancement of economic science!
Bastiat had it right. He made a distinction between ‘value’ and ‘utility’. Menger’s theory interposes the two. Bastiat would give ‘wheat’ the same ‘utility’ but it’s ‘value’ came in the amount of ‘effort’ taken to produce the bread, seed, beer, feed etc. As you replace ‘onerous labor’ (manual) with ‘gratuitous labor’ (nature) the ‘value’ is reduced. The product becomes closer to air, water in it’s abundance because it’s being produced more efficiently with the ‘help of natural agents’. (innovative methods of production – technological improvements).
Bastiat would argue that wheat, like water and air, had a constant utility but a fluctuating or marginal value.
But wheat, nor air, nor water, have ‘constant utility’.
Yes they do. Wheat is a food, air satisfies the lungs, water, thirst. That’s their ‘utility’. Their utility is constant. Wheat will not replenish the lungs or quench thirst. Their value varies in accordance to the ‘effort’ required to provide them. As technology makes food more abundant it’s value is reduced. (“gratuitous labor” – nature – replaces “onerous labor” – effort). The value is reduced, the utility is the same.
Comments on this entry are closed.