Very creative and thought provoking, but wrong. A DVD version of avatar sells for say $20 and Riaa gets some percentage of that. Joe blow downloads avatar for free from google or some other website, ptp or sneakernet. Joe blow sends the riaa some percentage of $20 in photocopied money. That does not provide the same utility for riaa as the avatar.mp4 did for Joe blow. Whether or not Joe blow's download of avatar for…
>That does not provide the same utility for riaa as the avatar.mp4 did for Joe blow. Good old Adam Smith teaches us that value in exchange is often the opposite of value in use. (His example is that we pay very little for water, which is vital for survival, but lots for a diamond that has very limited value in use, in comparison.) Joe's utility for watching the movie is thus almost irrelevant to the question of how m…
That's because, as brilliantly as Smith was able to demonstrate his ideas, the concept of marginal utility wasn't among them. Nearly a century later, Jevons, Wenger, and Walras brought about the "Marginal Revolution", which gave us the understanding that the reason water is so cheap for us is because we've already got so much of it. And this, in turn, allows us to understand that both sides of a transaction are unloading something they hold in (relative) excess for something that would increase their total utility function.