2. What is the “marginalist revolution”?

Discuss some of the main ideas and

contributors associated with this period.

The "marginalist revolution" refers to a significant shift in economic thought that occurred in the
late 19th century, particularly in the 1870s and 1880s. This revolution marked a departure from
classical economic theories, particularly the labor theory of value, and laid the foundation for
modern neoclassical economics. Several key ideas and contributors are associated with this
period:

1. Marginal Utility Theory:

One of the central ideas of the marginalist revolution is the development of marginal utility
theory. This theory, independently developed by William Stanley Jevons, Carl Menger, and Léon
Walras, revolutionized the understanding of value and price formation. Marginal utility theory
posits that the value of a good or service is determined not by the total quantity consumed but by
the utility derived from the consumption of an additional (marginal) unit. This insight led to the
rejection of the labor theory of value and provided a more nuanced explanation of consumer
behavior and market prices.

Contributors:

William Stanley Jevons: Jevons, a British economist, published his seminal work "The Theory of
Political Economy" in 1871, where he introduced the concept of marginal utility. He emphasized
the role of utility in determining demand and price formation.

Carl Menger: Menger, an Austrian economist, independently developed marginal utility theory
in his work "Principles of Economics," published in 1871. He emphasized the subjective nature
of value and argued that value emerges from individual preferences and marginal utility.

Léon Walras: Walras, a Swiss economist, developed a general equilibrium model based on
marginal utility theory. In his work "Elements of Pure Economics," published in 1874, Walras
introduced the idea of a hypothetical auctioneer who adjusts prices until supply equals demand in
all markets.

2. Subjective Theory of Value:

Another important aspect of the marginalist revolution is the shift towards a subjective theory of
value. Classical economists, such as Adam Smith and David Ricardo, adhered to the labor theory
of value, which held that the value of a good was determined by the amount of labor required for
its production. Marginalist economists rejected this view and argued that value is subjective and
depends on individual preferences and marginal utility.

Contributors:

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Carl Menger: Menger's subjective theory of value emphasized the role of individual preferences
and utility in determining value. He argued that value emerges from the interaction of supply and
demand in markets and is not determined by objective factors such as labor input.

William Stanley Jevons: Jevons similarly emphasized the subjective nature of value and utility in
his work on marginal utility theory. He argued that individuals make choices based on the
marginal utility of goods and services relative to their prices.

3. Equilibrium Analysis:

The marginalist revolution also saw the development of equilibrium analysis, particularly in the
work of Léon Walras and his concept of general equilibrium. Walras introduced the idea of a
hypothetical market mechanism where prices adjust until supply equals demand in all markets,
leading to a state of equilibrium. This approach provided a framework for analyzing the
interdependence of markets and understanding how prices are determined in an economy.

Contributors:

Léon Walras: Walras' general equilibrium model laid the groundwork for modern equilibrium
analysis in economics. He introduced the concept of market clearing, where excess supply or
demand leads to price adjustments until equilibrium is reached.

Vilfredo Pareto: Pareto, an Italian economist influenced by Walras, further developed the theory
of general equilibrium and made significant contributions to welfare economics and the theory of
efficiency.

Overall, the marginalist revolution represented a fundamental shift in economic thought,

introducing new concepts such as marginal utility, subjective value theory, and equilibrium
analysis. These ideas laid the foundation for modern neoclassical economics and continue to
shape economic analysis and policy to this day.