Final utility

<h2 id="example">Example</h2>
<p>If a hurricane struck Florida and there was a shortage of water, everything else equal, the <a href="/facts/Price/yWQ8edfN">price</a> of <a href="/facts/Bottled_water/rYhTeJLQ">bottled water</a> would increase. Water in Florida, before this <a href="/facts/Shortage/08r3vKHx">shortage</a>, was used for drinking water, cooking, watering plants, and bathing. With the tap off, the price of bottled water has increased to such an extent that bottled water will surely not be purchased for watering plants or bathing. That is, the increase in price reflects the increase in the value we attribute to the last use of the last unit in the <a href="/facts/Supply_(economics)/spSRt0JM">supply</a> of the <a href="/facts/Good_(economics)/AtK6gQh2">good</a>. To explain, before the hurricane, water was valued according to the fact that it would be used for bathing and watering plants. Now, with a shortage, it is valued according to its ability to quench thirst and cook food. The latter uses importance is "approximated" in the price of the good. The bottled water which now costs, say, $20 a bottle, is an approximation of the <a href="/facts/Value_(economics)/76jsyB6X">value</a> attribute to drinking water, cooking water, and whatever else it might be used for at the higher price—given that previous uses are not considered due to the shortage of supply and its corollary, the increase in price. That is why it is said that a homogeneous stock of goods is valued according to its final utility—according to its last use of a stock of a good.
</p><p>A supply of a good will be applied to most important wants first and least important wants last. When there is a shortage, all else being equal, the price increases. The smaller supply is being used for the most important wants, but is not being used for the least important wants. In this sense, we can say the increase in price represents the increase in value which the last unit of the supply is filling. Before water cost very little and was used for washing and watering plants. Now, since there is not enough for washing and watering plants and it is instead being used exclusively to drink and cook—the value we attribute to those activities is, in a sense, communicated through the higher price. The price reflects that importance of the last use of a supply—and in this case the supply was truncated to only allow for the more important uses.
</p><p>Final utility is the logical conclusion of <a href="/facts/Marginal_utility/ElXNboxy">marginal utility</a> and a cornerstone of <a href="/facts/Price/yWQ8edfN">price</a> theory.
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<h2 id="see-also">See also</h2>
<ul><li><a href="/facts/Austrian_School_of_Economics/y2qvtPD7">Austrian School of Economics</a></li>
<li><a href="/facts/Marginal_Utility/ElXNboxy">Law of Marginal Utility</a></li></ul>

<h2 id="references">References</h2>

<ol>
<li id="fn:1"><p>Böhm-Bawerk, Eugen von. "The Law of Final Utility - Eugen von Böhm-Bawerk - Mises Daily ." The Ludwig von Mises Institute . http://mises.org/daily/4637 (accessed April 29, 2011). <a href="/wiki/B%C3%B6hm-Bawerk" target="_blank">/wiki/B%C3%B6hm-Bawerk</a> <a href="#fnref:1" class="footnote-back-ref">↩</a></p></li>
<li id="fn:2"><p>von Böhm-Bawerk, Eugen, trans. George Reisman. "Eugen von Böhm-Bawerk’s “Value, Cost, and Marginal Utility”." Ludwig von Mises Institute. mises.org/pdf/asc/2002/asc8-reisman.pdf (accessed April 30, 2011). <a href="#fnref:2" class="footnote-back-ref">↩</a></p></li>
<li id="fn:3"><p>Ludwig von Mises. VII. Action Within The World, 1. The Law of Marginal Utility, Human Action, online version, referenced 2011-04-30. <a href="/wiki/Ludwig_von_Mises" target="_blank">/wiki/Ludwig_von_Mises</a> <a href="#fnref:3" class="footnote-back-ref">↩</a></p></li>
</ol>

Final utility open-in-new

Final utility