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Marginal Utility
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It has been common among economists to describe utility as corresponding to a measure, that is to say, as being quantifiable.[9][10] This has significantly affected the development and reception of theories of marginal utility. However, not all conceptions of marginal utility entail quantification of any sort,[11][4] and those which do not are able to consider rational preferences that would otherwise be excluded.[5] Then the marginal utility for a quantity used of a good (say, the fifth unit) is the utility of that quantity at the margin of feasible uses. From the margin of feasible uses, quantities of a good are then posited as selected for successive quantities to the point of equilibrium, beyond which no more feasible quantities would be selected. This may proceed from most-valued (urgent) quantity to successive less-valued quantities (if any). The process ensures that no less-valued quantity will be selected at equilibrium compared to quantities not selected. Marginal utility for the quantity of the good at that point corresponds to the least-valued use that would be selected compared to preceding quantities.
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Maurice Dobb pointed out that prices derived through marginal utility theory assume a pre-existing distribution of value. Consumers with different amounts of money have vastly divergent abilities to express their different preferences. A different distribution of income would produce different prices. As marginal utility theory asserts that prices arise in the act of exchange it is unable to explain how the distribution of income affects prices and Dobb argues that consequently it cannot explain prices.[44]
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Dobb ... criticized the motives behind marginal utility theory. Jevons wrote, for example, "so far as is consistent with the inequality of wealth in every community, all commodities are distributed by exchange so as to produce the maximum social benefit." (See Fundamental theorems of welfare economics.) Dobb contended that this statement indicated that marginalism is intended to insulate market economics from criticism by making prices the natural result of the given income distribution.[48]
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Here it is important to remember the link of marginal utility theory to one its forefathers, utilitarianism. For in the new economics the key orienting principle of ‘equilibrium’ is inextricably tied to the notion of the individuals’ ‘utility maximisation’. Everything else is built around these two principles which are never established, but always assumed. They reciprocally and quasi-axiomatically support one another, constituting thereby the real armour of the theory. According to the believers in the ‘subjective revolution’, the irrepressible drive of the – by their ‘human nature’ so determined – individuals for maximising their utilities brings about the happy economic condition of equilibrium; and by the same token, economic equilibrium itself is the required condition under which the maximisation of the utilities of all individuals predestined for the purpose of selfish utility-maximisation can be – and for good measure actually is being – accomplished.
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This may be the nirvana of capitalism – increased marginal customer utility. Imagine the customer finding more value with each incremental use. Some may suggest that this concept already exists in the form of volume discounts. However, this offers a vendor no real competitive advantage, as all of its competitors are likely to offer the same discount to large purchasers. Others may feel this is just a buffed-up version of "high switching costs." On the contrary, increased marginal customer utility preempts the need to impose switching costs, which can be seen as "trapping" or "tricking" the customer. Instead, the customer who abandons increasing marginal customer utility would experience "switching loss."
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Marginal utility curves for three goods, showing the situation before and after the third good becomes available. When good Z becomes available, the consumer buys less of goods A-Y and spends the money on Z instead. Colored regions show utility losses on goods A and B which (with similar losses on C-Y, not shown) add up to the colored region representing expenditure on good Z.
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Marginal Utility