> Suppose the more frivolous uses of water were somehow restricted.
Then you would no longer have a free market; people would be prohibited from engaging in transactions that they would have chosen to engage in without the prohibition. In that case, yes, price is no longer equal to marginal utility.
> Alternatively, consider that blood plasma and many life-saving medicines that have no other use are still cheaper than diamonds.
A better example, yes. I would tend to say the "market" in these things is not exactly free either. Somebody should ask Friedman about that one. :)
> And, for the sake of argument, let's agree with the marginalists. Aren't all the marginal values and costs for a digital creation, which can be easily replicated millions of times, practically zero?
And that's part of the point ... These aren't typically free exchanges. Part of the complaints brought on my customers is monopolistic (oligopolistic) practices, including forced bundling, false shortages, region restrictions, etc., coupled with government limitation (e.g., copyright laws).
Additionally, (and this is a point I argue with those proposing wholly market-based solutions to public education) a theorized free exchange with unshackled supply/demand curves assumes perfect information, which we don't have. (In this case, partly due to the long tail of attention.)
Then you would no longer have a free market; people would be prohibited from engaging in transactions that they would have chosen to engage in without the prohibition. In that case, yes, price is no longer equal to marginal utility.
> Alternatively, consider that blood plasma and many life-saving medicines that have no other use are still cheaper than diamonds.
A better example, yes. I would tend to say the "market" in these things is not exactly free either. Somebody should ask Friedman about that one. :)
> And, for the sake of argument, let's agree with the marginalists. Aren't all the marginal values and costs for a digital creation, which can be easily replicated millions of times, practically zero?
Yes.