The utility theorem of Bentham was the way formalizing and developing a scientific background for the ideas of economics. This theory enabled the economist to transform their ideas to the formulas on which they could make calculations, and develop theoretical extensions. The utility theorem formulized total utility and marginal utility. Total utility is the sum of the complete satisfaction from consuming goods. Marginal utility is the change in total utility against the change in the used amount of goods. This utility formulation enables economists to understand how the utility changes for people for their preferences of consumption (Hunt & Lautzenheiser, 2011).
Another essential concept developed by the marginalists is the relation between relative prices and relative marginal utilities for different products. When the rate of marginal utility to price becomes equal for all goods, then consumer maximizes his utility under his budget constraint. When Marginal utility change over price change is same for all commodities, the customer does not feel the need of changing his preferences because it is the best for him. The microeconomic theory developed by the marginalists assumes that all the agents within the sphere of a particular market have identical characteristics; therefore, their preferences are similar to each other.
Jevons refuted to the capital theory of Ricardo. According to Ricardo, when wages increase profits decrease. Jevons changed this, and he expressed that when wages increases, it is possible to increase profits because there is no negative relation between them (Hunt & Lautzenheiser, 2011).
Menger’s table summarizes the economic behavior of agents in the market. Menger’s schedule develops the marginal utility analysis of Jevons. According to Jevons, marginal utility comparison reveals information about the equilibrium for a consumer. Menger claimed that there other factors influencing the utility maximization of consumer including ends and goals, means, achievement, human being, desire or need, environment, subsistence, goods, and satisfaction. This table enabled Menger to develop a relatively more complex calculation for maximizing the utility (Hunt & Lautzenheiser, 2011).
Adam Smith develops a price theory of assuming that the market price is an added-value based on labor value of goods. Ricardo distributes price into production factor incomes. Marx tries to understand the social relations behind the market price. According to him, a fixed amount of capital is used for production, and the social relations determines the distribution of income among profit, wage, and rent. Getting relatively closer to our modern time, the economists have increased the importance of capital among the other production factors, and it was accepted as good of higher order (Hunt & Lautzenheiser, 2011).
The microeconomists (marginalists) look for developing equilibrium in the market and the economy. The balance point is a base for them to explain the changes accordingly. Walras is one of the pioneering economists for determining equilibrium conditions. Walras describes the behaviors of demanders and suppliers in many connected markets including goods and services markets and production factors markets. The stability of the equilibrium is necessary for Walras because disequilibrium causes some suffering for some agents in an economy (Hunt & Lautzenheiser, 2011).
Reference
Hunt, E. & Lautzenheiser, M. (2011). History of Economic Thought: A Critical Perspective (3rd ed.). New York: M.E. Sharpe Inc.
