Which theory attributes the value of a good to its marginal utility?

The subjective theory of value attributes a good's economic value to how individuals assess its usefulness and importance, especially its marginal utility.

“Marginal” means the next unit, not the good in the abstract. A thirsty person may value a first glass of water enormously, while a later glass provides less additional satisfaction. This diminishing marginal utility helps explain why essential goods can have low market prices when abundant, while scarce collectibles or luxury items can command high prices despite limited practical usefulness.

The modern marginalist version emerged independently in the 1870s through Carl Menger, William Stanley Jevons, and Léon Walras. Menger's 1871 Principles of Economics was especially important to the Austrian tradition. Their approach challenged classical theories that emphasized production costs or labor as the foundation of value.

The theory does not mean market prices equal one person's private estimate. Prices arise through interactions among buyers and sellers, with scarcity, alternatives, production costs, and competition also mattering. Alfred Marshall later combined subjective demand-side utility with supply-side costs. A common mistake is to treat “utility” as objective usefulness; in economics, it refers to a person's preference or satisfaction.