The subjective theory of value is an economic theory states that prices of goods and services in a market are determined by the subjective preferences of consumers.
The theory was proposed by Carl Menger, William Stanley Jevons, and Leon Walras in the 19th century.
It disputes the cost theory of value, which states that prices are determined by the costs of production.
According to the subjective theory of value, the cost of production is instead determined by the subjective preferences of consumers.
Alfred Marshall argued that prices are also influenced by the supply of a product, which is determined by the cost of production.
Pure subjective value theorists believe that the subjective preferences of consumers are the sole determinant of market prices.
Examples of the subjective theory of value include a consumer being willing to pay a high price for a luxury brand handbag because they place a high value on it, and a consumer being unwilling to pay a high price for a generic brand t-shirt because they do not place a high value on it.
The subjective theory of value is a way to explain how prices for things are decided. It says that the prices for things are based on how much people want them and how much they are willing to pay for them.
This is different from other ways of deciding prices, like the cost of making the thing or how much people need it.
For example, someone might be willing to pay a lot of money for a toy that they really want, even if it wasn’t very expensive to make. But someone else might not want to pay as much for the same toy because they don’t think it’s as special.
Here are a few examples of the subjective theory of value from an Indian customer perspective:
- A customer may place a high value on traditional handcrafted goods, such as sarees or jewelry, because they hold cultural or personal significance.
- A customer may place a high value on organic, locally grown produce because they prioritize environmental sustainability and supporting local businesses.
- A customer may place a high value on convenience and may be willing to pay more for delivery services or products that save time and effort.
- A customer may place a high value on luxury brands and be willing to pay a premium price for the prestige and perceived quality that comes with them.
- A customer may place a high value on social responsibility and may be more likely to purchase products from companies that engage in ethical and socially responsible practices.
These are just a few examples of how the subjective theory of value can influence a customer’s purchasing decisions. It’s important to note that every individual has their own unique values and priorities, which can impact their perceptions of value.