Econ: Basic Concepts sTudent will be able to explain the relationship between scarcity, value,...
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Econ: Basic ConceptssTudent will be able to explain the relationship between scarcity, value, utility,
and wealthStudents will be able to discuss the theory of marginal utility
Key NOtes
Primary to the study of economics is economic products
goods
capital goods - used to produce things
consumer good - finished product
Durable v. nondurable (3 year limit)
SErvices
Intangible (people??)
Value
What is it worth:
paradox of value - need=value, not always
solution: Value =Utility (demand)+scarcity (Supply)
What is wealth:
only goods... no service
should service be determined in Wealth?
productivity
efficiency
Amount of input doesn’t change - but output does
Can this make sense 2+2=>4????
usually references labor, but can mean capital and land (purchase of cheaper capital goods??)
eXample of economic growth: Industrial Revolution - increase in us productivity
economic growth
how do we increase economic growth?
increase productivity
Division of Labor
Specialization
Invest in human capital
education, professional development
economic interdependence
Every decision made (or lack there of) by every individual around the globe effects us all
CIRCULAR FLOW OF ECONOMIC ACTIVITY
Paradox of value
Diamond-Water Paradox
Theory of marginal utility -it is not the total usefulness of diamonds or water that matters, but the usefulness of each unit of water or diamonds total utility of water to people is tremendous, because they need it to survive the marginal utility of water is low because it is in abundanceeach additional unit of water that becomes available can be applied to less urgent uses as more urgent uses for water are satisfied
Utility (Demand)
Utility (demand) diminishes over time
As market become saturated
marginal Utility is the amount of additional utility the person receives from the consumption of an additional unit of a good or service
DIMINISHING UTILITY
Marginal Utility eQuation
marginal utility =
marginal utility =
# UNITS OF CONSUMPTION
TOTAL UTILITY
TU2 - TU1
C2 - C1
Calculate marginal Utility
Hours of Homework Total Utility Marginal Utility
0 01 152 223 264 285 286 25
Value = the object that has a higher marginal
utility? Explain.