Economics becomes a science · 1770s–1920s
1871–1874
The marginal revolution
Jevons, Menger and Walras explain value by the last unit, not the total.
In 1871 William Stanley Jevons and Carl Menger, and in 1874 Léon Walras, each argued that value comes from the satisfaction of one more unit, which falls as you have more. Walras also described how all markets settle into balance together.
💡 Why it made sense then
It solved an old puzzle: why water, essential to life, is cheap while diamonds are expensive.
Ideas it gave us
- ⚖️ Marginal utility
Marginal utility is the extra satisfaction from one more unit of something. It usually falls with each unit, which is called diminishing marginal utility.
- ⚖️ Marginal cost
Marginal cost is the cost of producing one more unit. Firms maximise profit by producing until marginal cost equals marginal revenue.
- ⚖️ Market equilibrium
Market equilibrium is the price at which the quantity buyers want equals the quantity sellers offer, so there's no shortage or surplus.
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