how do we determine the value of things
Aristotle had asked a question that
remained unanswered through centuries
why water that is vital for all life is
cheap
while diamonds are expensive even though
we can live without them we had to wait
a long time for an answer provided by
economic law of diminishing marginal
utility imagine that all you have is
merely one Apple it is really precious
to you because it allows you to satisfy
your hunger and stay alive for you this
Apple is absolutely essential and you
have to eat it right away after that you
decide to go for a walk and you come
across two more apples you were very
satisfied with your fine
so you eat the second Apple to your
heart's content you decide to keep the
third Apple for later because you are
already full as you stroll further you
stumble on a whole orchard with hundreds
of apples hanging from trees it seems to
you that your biggest dreams come true
so you decide to settle down near the
orchard after a mere week you grow tired
of the apples in fact at this time a
mere thought of their taste seems
nauseating to you and you can't even
look at them any longer your neighbor
Gregory has a pear farm only a few
hundred yards away from your orchard he
has the same problem you have only with
his pears he's been eating them for a
few months now and he is fed up with
them so you meet with him and you both
agree to exchange your produce one pair
from Gregory's farm is worth much more
to you than your Apple but the exchange
is still fair because Gregory values
your Apple much more than he values one
of his pears this story provides several
important points each additional unit of
a given good satisfies a less important
need the first Apple appeases your
hunger letting you survive the second
Apple fills you up the third Apple can
be saved for later thus satisfying your
need to avoid future hunger this implies
that each additional Apple you have is
worth less to you the first one was a
priceless necessity needed to avoid
starvation the second one was merely a
pleasurable snack with each consecutive
Apple it's worth fades away in your eyes
there are no Goods of fixed value
they're valuable as long as people value
them and only to that extent
imagine yourself one day finding a large
and heavy statue but many years ago by
your grandfather a sailor by trade for
your grandmother
a young woman then you don't really like
the statue it's only collecting dust you
decide to sell the statue to get rid of
it you think yourself if someone would
only pay for its delivery then it would
save me the trouble of throwing it out
it turns out that the price of the
statue skyrocketed to five hundred
thousand dollars because of bids made by
two eccentric and rich art collectors in
fact they searched for the statue for
the last ten years because it was the
last piece of a collection they were
both trying to complete this example
shows that one in the same good can be
valued very differently by different
individuals let us go back to the
question posed by Aristotle in case of a
massive drought everyone would value
water more than even the rarest of
diamonds we have no real use for
diamonds while we are dying of thirst
but where there is plenty of water our
thirst may be quenched easily typically
we value diamonds much more than water
because when we have shelter we don't
suffer from hunger nor from thirst then
we tend to satisfy our more
sophisticated needs like aesthetics
diminishing marginal utility is true for
money too if you don't have any money at
all then one thousand dollars will
change your life substantially you can
use the money to rent a humble flat and
buy some food although it won't be a
fancy existence it will still be a huge
positive change in your quality of life
as compared with being homeless and
constantly starved but if your monthly
income is five thousand dollars then
another one thousand dollars won't
improve your quality of life for that
much obviously you still want it it will
still be a substantial game but it won't
be a matter of life or death anymore if
your income is 1 million dollars you
might not notice another $1,000 it may
even not be desirable at all because 1
million dollars a month may pay for all
of your material needs and for you such
things as love time spent with your
family your own health and leisure may
hold even more worth as those things
cannot be bought you may consider
chasing additional money as futile and
choose to rather spend your time with
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