Question
How much water does roses need?
Answer
For example, if someone had 5 gallons of water and he loses one, he will not choose to sacrifice his highest priority want which is to sustain his life but will choose to not water his roses. In other words, if he has 5 gallons of water, the least valuable use in satisfying his wants for any given one of those gallons is the watering of his roses. This is the use that is on the "margin." So the "marginal utility" of one gallon of water for him is the benefit he receives by watering his roses. In terms of applying this to prices, he will not be willing to sell one of his 5 gallons of water unless what he receives in return satisfies a greater want than the satisfaction he receives by watering his roses. If he had 10 gallons of water, naturally the marginal utility of water would be lower and he would be willing to sell it at a cheaper price. If he had an unlimited amount of water and kept it all to himself, any given gallon of water would have absolutely no usefulness to him. He is only able to drink so much water, and his roses can only handle so much water. So, he is willing to trade a gallon of water for things that are of any usefulness at all in order to increase the satisfaction of his wants. If money is in use, he would be willing to sell his water for any price that is above zero that others offer, so that he can purchase other things that satisfy still unmet wants; his water needs are already more than satified. Of course, the price that actually resolves also depends on the demand side. Demand is also determined by marginal utility. If an individual is wanting to buy one gallon of water, he will not trade something for a gallon unless the least satisfaction he receives from keeping that thing is lower than the satisfaction he will receive by having the gallon of water (note that he does not have to have a possession to trade, for he can trade one unit of his labor). If another object is substitued for water, such as gasoline, it would have a different marginal utility and thus a different price. The higher the marginal utility for all market participants as a whole, the higher the price.
— Source: Wikipedia (www.wikipedia.org)