In economics, marginalism is the belief that economic value is set by the consumer's marginal utility. It’s one of the basic economic approaches. This approach seeks a level of operation of some activity that will maximize the net gain from that activity (which is the difference between its benefits and costs). During any activity, the benefits and costs increase, but because of diminishing returns, costs will generally rise faster than benefits. At its maximum level, marginal costs (the cost of increasing the activity) equal marginal benefit (the benefit of increasing the activity) so the activity is said to be optimized, or maximized. In other words, further expansions will cost more than it is worth, and further reductions will reduce benefits more than it will save costs.
The marginal theory of value was first broached in the 1870s, and it revolutionized economics. An earlier theory holds that the value of an item is a reflection of the work and resources devoted to making it, or the cost-of-production theory of value. Some economists, particularly many classical economists still believe this. Most Marxist economists also accept a version of the earlier theory, the labor theory of value.
Neo-classical economists accepted the marginal utility explanation for value and grafted this insight on to classical economics. Although the factors of production were still thought to be important, customer demand and the marginal benefits that they would obtain from a good is seen as the driver of the whole process and the ultimate source of economic value.
The “law” of diminishing marginal utility is said to explain the “paradox of water and diamonds”. Human beings cannot even survive without water, whereas diamonds were mere ornamentation or engraving bits. Yet water had a very small price, and diamonds a very large price, by any normal measure. Marginalists explained that it is the marginal usefulness of any given quantity that matters, rather than the usefulness of a class or of a totality. For most people, water was sufficiently abundant that the loss or gain of a gallon would withdraw or add only some very minor use if any; whereas diamonds were in much more restricted supply, so that the lost or gained use were much greater.
That is not to say that the price of any good or service is simply a function of the marginal utility that it has for any one individual nor for some ostensibly typical individual. Rather, individuals are willing to trade based upon the respective marginal utilities of the goods that they have or desire (with these marginal utilities being distinct for each potential trader), and prices thus develop constrained by these marginal utilities.
The AustrianSchool accepted marginalism more completely. They made a clear break from the factor input theories of value. They used marginal utility as a starting point in breaking away from the stress that other economic schools put on analysis of economic data.
Karl Marx died before the marginalism theory came about. Thus the task of critiquing this theory fell to his followers, who still hold to the labor theory of value.
In economics, 
