Basic terms and Concepts of Economics

Basic terms and Concepts

Value

Value refers to a worth that can be expressed in dollars and cents. The paradox of value is the situation where some necessities have little monetary value, whereas some non-necessities have a much higher value. Scarcity is required for value, but scarcity alone isn't enough to create value.

Utility

Utility is the capacity to e useful and provide satisfaction; it is required for something to have value. The utility of a good or service may vary form one person to the next. A good or service does not have to have utility for everyone, only utility for some.

Value refers to a worth that can be expressed in dollars and cents.

Wealth

Wealth is the accumulation of those products that are tangible, scare, useful, and transferable from one person to another. A nation's wealth is comprised of all items. Goods are counted as wealth but services are not because they are intangible.

The moat commonly accepted definition of wealth is that it consists of all useful and agreeable things which possess exchange value, and this again is generally regarded as coextensive with all desirable things except those which do not involve labour or sacrifice for their acquisition in the quantity desired. On analysis it will be evident that this definition implies, directly, preliminary conceptions of utility and value, and, indirectly, of sacrifice and labour, and these terms, familiar though they may appear, are by no means simple and obvious in their meaning. Utility, for the purposes of economic reasoning, is usually held to mean the capacity to satisfy a desire or serve a purpose (.J. S. Mill), and in this sense is clearly a much wider term than wealth. Sunshine and fresh air, good temper and pleasant manners, and all the infinite to the general definition, is exchange value, but a little refiexion will show that in some cases it is necessary rather to contrast value with wealth. " Value," says Ricardo, expanding a thought of Adam Smith, "essentially differs from riches, for value depends not on abundance but on the difficulty or facility of production." According to the well-known tables ascribed to Gregory King, a deficiency of a small amount in the annual supply of corn will raise its value far more than in proportion, but it would be paradoxical to argue that this rise in value indicated an increase in an important item of national wealth. Again, as the mines of a country are exhausted and its natural resources otherwise impaired, a rise in the value of the remainder may take place, and as the free gifts of nature are appropriated they become valuable for exchange, but the country can hardly be said to be so much the wealthier in consequence. And these difficulties are rather increased then diminished if we substitute for value the more familiar concrete term " money-price," - for the contrast between the quantity of wealth and its nominal value becomes more sharply marked. Suppose, for example, that in the total money value of the national inventory a decline were observed to be in progress, whilst at the same time, as is quite possible, an increase was noticed in the quantity of all the important items and an improvement in their quality, it would be in accordance with commonsense to say that the wealth of the country was increasing and not decreasing.

So great are these difficulties that some economists (e.g., Ricardo) have proposed to take utility as the direct measure of wealth, and, as Mr Sidgwick has pointed out, if double the quantity meant double the utility this would be an easy and natural procedure. But even to the same individual the increase in utility is by no means simply proportioned to the increase in quantity, and the utility of different commodities to different individuals, and a fortiori of different amounts, is proverbial. The very same things may to the same individual be productive of more utility simply owing to a change in his tastes or habits, and a different distribution of the very same things, which make up the wealth of a nation, might indefinitely change the quantity of utility, but it would be paradoxical to say that the wealth had increased because it was put to better uses.