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The marginal theory of value asserts that the economic value of an object or service is set by the consumer's marginal utility.
The essential idea is that to have value an object must be both useful and scarce to a consumer.
This theory was first broached in the 1870s, and it revolutionised economics. Previously it had been believed that the value of an item was a reflection of the work and resources devoted to making it, the cost-of-production theory of value. This was widely believed by classical economists.
Neo-classical economists accepted the marginal utility explanation for value and grafted this insight on to classical economics during the Neoclassical Revolution. The Austrian School used marginal utility as a starting point in breaking away from the stress that other economic schools put on analysis of economic data.
see also labor theory of value
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