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.