Marginal Value Sets Prices Not Total Value

The worth of something is set by the value of adding more of it, not the total value of that think.

x - quantity of something V - value to society

\[ \rm{cost} \sim \frac{dV}{dx} \]

Not

\[ \int V dx = \rm{Total\ value} \] Water is more valuable to society than diamonds, but the marginal value of the amount of diamonds you can produce will almost always be worth more than the marginal value of the amount of water you can produce.

Follow-ups

  • It matters both how important something is to society and how much of it already exists relative to the total demand.

Links:

202501191138

Backlinks