Economic Goods – definition and examples | Economics Help
In this article, we propose to explain some terms which are frequently used in This distinction between economic goods and free goods is not permanent. . It expresses relationship between the two commodities; it relates one to the other. There are three attributes of wealth, as in the case of value: Utility, Scarcity and . D) attain wealth. Answer: B 6) As an economic concept, scarcity applies to. A) both money and 11) In broad terms the difference between microeco- nomics and . C) utility cost. . considered the highest-value alternative forgone. Answer . Investopedia explains the concept of utility, an abstract concept where the units that assign an amount of utility are arbitrary and are only used for representing relative value. Utility, then, is used to explain how and why individuals and economies aim to gain optimal satisfaction in dealing with scarcity.
The difficulty is that a strict definition of an economic good says that the value of the good should have some market value and be traded.Scarcity and Choice Economics.
It is hard to put a value on the benefit of saving a rare species from extinction. But at least, some people would spend money to save a species from extinction because they feel it is a worthwhile act.
Therefore, the rare species do have an economic value. Is the smallpox virus an economic good? If you wanted to make life difficult we could consider whether a virus kept alive only in laboratories is an economic good.
It would be hard to argue that the smallpox virus has any possible benefit to humans or the planet, but as an instrument of suffering, we would be better off destroying it. Are public goods economic goods?
Public goods have the characteristics of non-rivalry and non-excludability, e. They are economic goods because there is a scarcity and opportunity cost in providing for them. They are free at the point of use. Public goods such as street lighting are not free to society because you pay for them indirectly out of taxes. Is education an economic good?
Education which requires teachers and books is an economic good. There is an opportunity cost in paying for teachers. There is also a value to society from providing the good. Even if a rare form of birds has no direct benefit to man, I would like people to see the value in protecting these rare species.
For me, the definition of economic utility is quite wide. There are intangible benefits from looking after rare species. Rotten eggs may be scarce: A book has utility; it is also scarce and transferable.
It has, therefore, value in the economic sense. Value is not the same thing as price. When value is expressed in terms of money, it is called price.
In pre-historic times, people did not know the use of money. They exchanged goods for other goods.
Discuss the relationship among scarcity, value, utility, and wealth? | Yahoo Answers
This system is called barter. In those days, the price of a commodity meant the commodity or commodities for which it could be exchanged. In other words, price and value could be used as synonyms. In modern times, however, goods are ordinarily exchanged for money. Therefore, the price of a commodity today means its money-value, i.
It cannot be absolute. It is impossible to speak of the value of a commodity in an absolute manner independently of something else. For example, to say that the value of a fountain pen is great, gives an idea of its utility only. To talk of the value of a fountain pen.
In the economic sense, we must relate it to something else which we can get in exchange for it. Value is always in terms of something Value equates certain commodities, i. It expresses relationship between the two commodities; it relates one to the other. That is why value is said to be relative.
A thing does not stand alone. When we are thinking of its value, we always think of something else also, in terms of which its value can be expressed, whether it is money or any other commodity. Value thus is relative and as such represents an equation between two commodities. It is very easy to see that both sides of the equation cannot rise at the same time. Take the previous example: If the fountain pen increases in value, it will buy more pencils than before, which means that pencils have gone down in value.
On the other hand, if pencils become more valuable, less than 5 dozen will be needed to buy a fountain pen. This means that the value of the fountain pen has gone down. Thus, if one thing goes up, the other thing comes down in value. The value of both cannot go up or come down at the same time. Hence there cannot be a general rise or fall in value; But there can be a general rise or fall in prices. We see such a rise in prices now-a-days.
The price of everything has gone up at the same time. But here we are looking at one side of the equation only, the goods side, and not the other, the money side. Goods have gone up in value, while money has come down in value. Thus all prices have risen, but all values have not risen.
Hence we can conclude that there can be a general rise in prices, but there cannot be a general rise in values. A man of wealth, as ordinarily understood, is a rich man, i. But in Economics every man, even the poorest of the poor, possesses some wealth, as we shall see presently. But in Economics money is not the only form of wealth; anything which has value is called wealth in Economics.
Economic goods are scarce and command a price in the market. If it is a useless thing, e. Nobody will pay anything for nobody would like to have it; and a will not be wealth. It is wealth only if man needs it and uses it.
Therefore, besides being scarce, a commodity must have utility. But it may not be necessarily useful. Even a harmful thing will be regarded as wealth, provided it possesses utility and can satisfy a want.
Further, the idea of ownership is also present in wealth. This means that unless an article can be owned and is capable of being transferred from one owner to another, it cannot be regarded as wealth. Thus, we see that before a thing can be called wealth in economics, it must possess certain attributes or qualities which we discuss below. There are three attributes of wealth, as in the case of value: Utility, Scarcity and Transferability or Marketability.
If you want to find out whether a good is wealth or not, ask yourself these three questions: Can it satisfy a human want? Or does it possess utility? If the answer to all these three questions is in the affirmative, it is wealth. A negative answer to any one of these questions will exclude it from the category of wealth. For instance, if a thing possesses utility but is not scarce and vice versa, it is not wealth.
It must be both scarce and useful if it is to be called wealth. It must also be transferable. Applying these tests, we find that money, land, buildings, furniture, machinery, clothes, gold, silver, goodwill of a business, in fact all goods, material and non-material, which are objects of human desire, which are scarce, and which can be bought and sold in the market, are wealth.
Documents of title like bills of exchange, bills of lading, documents of property and insurance policies up to surrender value are also wealth.
Economic Goods – definition and examples
They are valuable because they represent titles to property. Hence they are sometimes called Representative Wealth. But free goods like fresh air, water and sunshine are not wealth unless they become scarce as in big cities.
Personal qualities like honesty, skill, ability and intelligence too are not wealth. They are a source of wealth but are not wealth in themselves, because they are not transferable. In the same manner, the oceans, the Gulf Stream, the sun, the moon, etc.
Utility and value
Human beings are not wealth, unless they happen to be slaves. As such they are property of their master and can be transferred. Money is wealth as defined above—it possesses utility; it is scarce and it is transferable. All money is, therefore, wealth, but all wealth is not money, as wealth is understood in the ordinary speech. Wealth takes so many forms; it consists of all kinds of property and money is only one kind of wealth.
Income is what the yields. A man may possess a lot of immovable property.
It may be worth Rs. This is his wealth. But how much, does he get from it in a year? Wealth is a fund and income a flow. Wealth and welfare are very closely inter-related. Wealth is the means and welfare the end. Economics studies wealth and not welfare because there is no general agreement on what welfare means.
The idea of welfare varies from individual to individual, from time to tine and from country to country. Wealth, on the other hand, has a definite meaning.
Economics makes wealth its subject-matter, because wealth happens to be a convenient measure of human motives. Wealth is not studied for its own sake. Wealth in general promotes welfare.
If a man happens to be a rich man, he will be able to live well himself and may also help others. Wealth thus promotes welfare. We repeat that wealth is the means and welfare the end. Wealth can undoubtedly be used to make people happier and more comfortable. Poverty is a great curse and root of many evils. But wealth promotes mental, moral and physical well-being of the people.
It may, however, be pointed out that what is regarded as wealth by economists may not necessarily be good and useful. It may actually be harmful, e. These are regarded as wealth, but their use does not promote human welfare. Wealth, as understood in Economics, has nothing to do with usefulness. No ethical or moral meaning is attached to it.
Further, as has already been mentioned, increase in wealth does not necessarily mean an increase in welfare.
It only means that the number of economic goods, which have become the property of people, has increased, whereas the number of free goods like fresh air and water, which are highly desirable and useful, has decreased.
It cannot be claimed that this state of affairs has promoted the welfare of society. Thus, wealth and welfare are not synonymous under all circumstances. But, on the whole, wealth is a powerful means of promoting human welfare. Wealth can be classified as follows: The wealth of an individual consists of: But we do not include in wealth his personal qualities like skill and intelligence, for they are not saleable. We also deduct the money he has borrowed and has to pay back.
Personal qualities like skill, ability and intelligence are not wealth as explained above. It consists of State and Municipal property, that is, things owned by a society or community in common. Narrowly speaking it consists of the aggregate wealth or all citizens, excluding me debts due to one another.
Here we use the term wealth as defined above. In the wider sense, however, national wealth may also include rivers, mountains, a good climate, good government, high character of the people, etc. They are valuable national assets. Such things cannot be called wealth in the strict economic sense. It is the wealth of the whole world, a sum total of the wealth of all nations. It includes the wealth of all countries in the strict economic- sense as well as rivers, mountains and all other natural resources which are regarded as wealth in the wider sense.
This refers to debts owned by individuals or States. If something is a nuisance, say wild pigs or stray cattle damaging the crops, it may also be regarded as negative wealth. Our sugar factories some time back had to incur a lot of expense in getting molasses removed from their premises; in those circumstances molasses were negative wealth. Income, Saving and Investment: Wealth refers to property or assets.
The amount of money which these assets yield is called income. While wealth is a stock, income is a flow. Distinction may also be made between money income and real income. While income of a person expressed in terms of money per month or year is his money income, the Real income of a person consists of goods and services that he purchases with his money income. Real income depends on prices. It rises inversely with the price level.
Income from the point of view of the economy as a whole, i. It includes income produced both inside the country and that earned by its nationals abroad. A part of the current income is consumed or spent and a part thereof is saved and invested. The excess of income over consumption is the saving made by the people.
Saving may be held in the form of cash or a bank balance or in some investment, i. Investment thus includes additions to inventories as well as to fixed capital. Investment may be autonomous or induced. Autonomous investment is made by the State for promoting public welfare and induced investment is done by businesses as a result of change in the income level or consumption and also depends on price changes, interest charges, etc. Equilibrium means a state of balance.
When forces acting in opposite direction are exactly equal, the object on which they are acting is said to be in a state of equilibrium. For example, a consumer is said to be in an equilibrium position when he is deriving maximum satisfaction and a producer or a firm is said to be in equilibrium when it is making a maximum profit or incurring a minimum loss.
7 Terms of Economics and their Concepts – Explained!
In both cases, there will be no inducement to change, i. An industry is said to be in equilibrium when all the firms in the industry are making normal profits so that there is no inducement for the new firms to enter or the old firms to leave the industry. There is no incentive for any more change. There is said to be a stable equilibrium when the object, on which forces are acting, after having been disturbed, tends to resume its original position.
But, when a slight disturbance evokes further disturbance, so that the original position is never restored, it is a case of unstable equilibrium. On the other hand, when the disturbing forces neither bring it back to the original position nor do they drive it further away, it is called neutral equilibrium.
In economic analysis, stable equilibrium is most commonly used Short-term Equilibrium: In the case of short-term equilibrium, economic forces do not get sufficient time to bring about complete adjustment.
For example, supply is adjusted to changes in demand with the existing means of production, for there is no time to increase them or decrease them. However, in the case of long-term equilibrium, there is ample time to change increase or decrease even the means of production or the resources available.
For instance, if demand is increased, the supply will also be increased not only with the existing plant and machinery but also by installing new plants and machinery and there is enough time for that purpose. In this case, sufficient time is allowed for mutual adjustment of the economic forces. A partial or a particular equilibrium relates to a single Relation between Income, Consumption, Saving and Investment.
A producer is in equilibrium when he is able to maximise his aggregate net profit in the conditions in which he is working. A firm is said to be in equilibrium when it has attained the optimum size which is ideal from the point of view of profit and utilisation of resources at its command.
Then there is no tendency for it to expand or contract. Equilibrium of our industry refers to a state of industry when there is no incentive for new firms to enter or the existing firms to leave it. Such an equilibrium is not concerned with a single variable, but with a multiplicity of variables.
Particular equilibrium covers a single organisation in the economic system, whereas in general equilibrium all the organisations work the economy is affected. It is, in short, equilibrium of the entire economy. When there are no maladjustments in the economic system as indicated by depression or unemployment and when each part of the system is adjusted with the other we may say that it is a case of general equilibrium.
Let us try to understand them. However, economic statics does not imply absence of movement, rather it denotes a state in which there is a continuous, regular, certain and constant movement without change. It is a state wherein economic activity goes on regularly and constantly on an even keel. A static state is characterised by the absence of five kinds of change the size of population, the supply of capital, the methods of production, the forms of business organisation and the wants of the people; but all the same the economy continues to work at a steady pace.
According to Hicks, we should call economic statics those parts of economic theory where we do not trouble about dating. Thus, it is a method of dealing with economic phenomena that tries to establish relations between elements of the economic system—prices and quantities of commodities—all of which have the same point of time.
In simple words, economic statics presupposes that the manner in which an economic unit changes is the same as it changed in the past and will change in the future. It suffices, therefore, under economic statics, to study the economy in its present position.
Significance or uses of economic statics: Though economic statics is mostly unrealistic and unsuitable for most of the purposes, yet it enjoys the virtue of simplicity. Again, it is only through the method of economic statics that we study how an individual allocates his income on the purchase of various commodities to maximize the satisfaction, how a producer combines his inputs in an optima!
The static analysis suffers from a few serious shortcomings.