Mengerian Price Theory

Mengerian Price Theory, developed by economist Carl Menger, explains how prices are determined by the subjective valuations of individuals. It emphasizes that prices arise from the marginal utility— the additional value a person gains from consuming an extra unit of a good— and how supply and demand interact at this margin. Essentially, prices are not set by costs alone but reflect the importance buyers assign to goods relative to other options. This theory highlights that prices guide resource allocation efficiently, as individual preferences and the competitive interplay of market forces determine how goods and services are priced in a free market.