Theory of value (economics)
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"Theory of value" is a generic term which encompasses all the theories within economics that explain the worth of goods and services. A key question in economic theory is how the value of goods and services comes about, and how to calculate the correct value of goods and services (if such a value exists). Theories of value fall into three main categories:
Intrinsic (objective) theories
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- see main article: Intrinsic theory of value
- Intrinsic theories, as the name implies, hold that the value of goods and services is a property built into the item itself. This implies that every item has a certain worth that does not depend on what people think of it.
Subjective theories
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- see main article: Subjective theory of value
- Subjective theories hold that for an object to have economic value (a price), the object must be useful in satisfying human wants and it must be not be in unlimited supply. This is the foundation of the marginalist theory of value, of neoclassical economics.
Objectivist theory
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- see main article: Objectivist theory of value
- The Objectivist theories of value hold that items have built-in properties, and that humans make judgments of worth or value, based on how well the built in properties can meet his or her needs. In this way, the properties are in the items, but the value are in the judgment of the user.
[edit] The diamond-water paradox
- see main article: Diamond-water paradox
The diamond-water paradox refers to the fact that, while water is essential for life, and diamonds only have aesthetic value, the former is vastly cheaper than the latter. Most of the different theories on value have been formulated by noted economists to solve this paradox.
[edit] See also
- Cost-of-production theory of value
- Marginal theory of value
- Labor theory of value
- Objectivist theory of value
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