| The units of a good available to an actor at a given time is called his or her stock of the good. The usefulness—and hence the subjective value—of each unit depends on the actor's purposes and other resources, and in particular on his or her current stock of the good. The relationship between utility (value) and one's stock is defined by the law of diminishing marginal utility. Suppose, for example, that Crusoe possesses one horse, and that his highest-ranked utilities for a horse are shown on the value scale at right. For simplicity, we assume: (1) the relevant unit is one horse; and (2) each horse can be conveniently allocated to only one of the uses shown.
Clearly, Crusoe will allocate his one horse to its most valuable use—namely, as transportation. If a second horse becomes available, it will still be useful, but less so that the first horse, since he can only allocate it to the second-most valuable use—that is, pulling a cart.  |
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Crusoe
 transportation
pulling a cart
pulling a plow
enjoyment as a pet
100 pounds of horse meat
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