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The concepts of value, price, and wealth in economics. It explains the characteristics of value and wealth, the distinction between wealth and welfare, and the different types of wealth. It also explores the relation between money and wealth, and income and wealth. definitions and examples to help readers understand these concepts.
Typology: Lecture notes
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Lecture No. Value – Definition – Characteristics; Price – Meaning, Wealth – Meaning Attributes of wealth, Types of wealth, Distinction between wealth and welfare.
Value and wealth
Value The word “Value” in economics conveys value-in-exchange. It does not include free goods which have only value-in-use. In other words, value of a commodity refers to those goods that can be obtained in exchange for itself or purchasing power of a commodity in terms of other commodities and services. Value can be referred to as the capacity of a good to command other things in exchange. Characteristics of Value.
Price In Pre historic times, people did not know money and they had a barter system in which goods are exchanged with goods. Therefore, in those days value and price were used synonymously. But now days, goods are exchanged for money. Therefore, Value expressed in monetary terms is Price
Wealth In ordinary language, “Wealth” conveys an idea of prosperity and abundance. A man of wealth understood as a rich person. But in Economics Wealth is synonymous with economic goods. In short, Wealth means anything which has value.
Definition: It consists of all potentially exchangeable means of satisfying human wants (J.M.Keynes)
Characteristics of wealth :
Relation between Money and Wealth : Money is a form of wealth .All money is wealth but all wealth is not money
Relation between Income and Wealth : Income is different from wealth. Wealth yields income. Therefore, Wealth is a fund whereas income is a fl Types of Wealth :
Wealth and Welfare compared Wealth Welfare It is the means to an end It is the end itself It is objective It is subjective It includes harmful goods It does not include harmful goods It does not include free goods Free and economic goods lead to welfare
Schedule showing marginal utility and total utility Units of apples consumed Total utility in utils Marginal utility in utils
1 7 7
2 11 4 (11 - 7)
3 13 2 (13 - 11)
4 14 1 (14 - 13)
5 14 0 (14 - 14)
6 13 -1 (13 - 14)
The above table shows that when a person consumes no apples, he gets no satisfaction. His total utility is zero. In case he consumes one apple, he gains seven units of satisfaction. His total utility is 7 and his marginal utility is also 7. In case he consumes second apple, he gains extra 4 utils (MU). Thus given him a total utility of 11 utils from two apples. His marginal utility has gone down from 7 utils to 4 utils because he has a less craving for the second apple. Same is the case with the consumption of third apple. The marginal utility has now fallen to 2 utils while the total utility of three apples has increased to 13 utils (7 + 4 + 2). In case the consumer takes fifth apple, his marginal utility falls to zero utils and if he consumes sixth apple also, the total utility starts declining and marginal utility becomes negative. Total utility and marginal utility from the successive utits of the commodity are plotted in the figure below:
i. The total utility curves starts at the origin as zero consumption of apples yield zero utility. ii. The TU curve reaches at its maximum or a peak at M when MU is zero.
iii. The MU curve falls throughout the graph. A special point occurs when the consumer consumes fifth apple. He gains no marginal utility from it. After this point, marginal utility becomes negative. MUa = TUa – TU(a-1)
Importance of the Law:
Exceptions to LDMU are as follows :