Econ: Basic Concepts sTudent will be able to explain the relationship between scarcity, value, utility, and wealth Students 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 abundance each 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 = # UNITS OF CONSUMPTION TOTAL UTILITY TU 2 - TU 1 C 2 - C 1

Calculate marginal Utility Hours of Homework Total UtilityMarginal Utility

Value = the object that has a higher marginal utility? Explain.