Concepts and Terms in Economics
Although a student may have a reasonable understanding of the scope of economic science, he is unable to study the subject at any advanced level until he has mastered the meaning of the main economic terms. Due to this, the student might need to avail assistance with economics homework and spend more time understanding basic topics. As with all sciences, economics has its own jargon or terminology. Sometimes it is necessary to use a word in a slightly different way from ordinary speech; otherwise, the economist would have to invent new words or adopt rather peculiar terms. Writers of economic textbooks have often been at variance over the use of terms. Professor Heinz Kohler believes that beginners are typically swamped with language, which contributes to confusion instead of understanding' (Scarcity Challenged, Holt, Rinehart, and Winston). It is the aim of this blog to clarify some of the basic economic concepts in terms that the majority of economists would accept
- They must be desired because of some satisfaction -10% of which they offer A very old program football match may be of no value to most people, but it may become valuable if it is desired by a collector.
- They must be relatively scarce The stones on the sea-shore would not normally be regarded as wealth because they are in abundant supply, but certain types of stone would become wealthy if they could be utilized as building materials,
- They must be capable of being transferred from one person or group of persons to another person or group It is even possible to transfer intangibles, such as business goodwill or milk round, but some things cannot be exchanged. For example, it is not possible for a man, who has good hearing, to pass on to a deaf man the ability to hear. However, if it is possible to pass on the cornea of the eye to give eyesight to a blind man, the cornea could become an object of wealth
The ownership of wealth
- Individual wealth Even in a collectivist society, one would presumably want to posers one's own toothbrush,
- Commercial wealth (eg, shops, banks, offices, etc.) Commerce is usually concerned with trade and, therefore, we include the wealth of those who supply services, eg, hairdressing salons, restaurants, launderettes, etc.
- Industrial wealthis Wealth owned by private businesses or the state. In the private sector of the UK, there are factories, plants, raw materials; etc, while in the public sector there are power stations, railways, roads, coal mines, etc.
- Social or community wealth This is usually ownable collectively on the people's behalf by central government or local authorities. Under this heading may be included hospitals, schools, museums, libraries, etc
Scale of preferences
Two views of the scale of preferences
- The utilities (satisfactions) are arranged so that the most pressing or urgent requirements are near the top of the scale and those which are just worth satisfying are placed near the bottom. These are the marginal wants, and it is at the margin that changes will be made. The Law of Substitution or Equimarginal Returns will operate: the purchase of goods will be substituted at the margin (some goods will be replaced by others or quantities purchased will be rearranged) so that maximum utilities are preserved. When an individual is spending his money in the optimum way it is yielding Equimarginal returns.
- It is also reasonable to compile a scale of preferences so that every penny spent attracts the same amount of utility. If this were not the case then it would be logical to expect the person to have a different scale of preferences. It is very unlikely that any two people have identical scales of preference. Each person is continually changing the way in which he spends his money, although he would not willingly spend a penny more on one commodity or a penny less on another. As we saw when we studied the method of equilibrium analysis. it is unlikely that maximum satisfaction will be secured even in the short run, so scales of preference are bound to be fluid.
- Marginal cost This is the cost to the producer of an extra unit or the saving in cost of reducing production by one unit. We shall see later that, if port accepted as a necessary cost of production, then the producer will fix his output at a point where marginal cost and marginal revenue are equal. If the cost of the last unit produced was greater than the revenue received from the sale of it, then the manufacturer would be foolish to produce it. We shall see that his prefix will not be maximized while his marginal revenue is less than his marginal cost.
- The marginal want This is that want just worth satisfying while the marginal purchaser is not promised anything specific in return. chaser to whom the commodity or service is just Although the government is likely to spend its worth the price charged
- Marginal utility This is the gain or loss of satisfaction from a slight increase or decrease in the supply of a commodity desired by the purchaser Diminishing marginal utility represents the decreasing satisfaction, which after a certain point, is obtained from each additional unit.
- The marginal rate of substitutionThis involves the substitution at the margin of one commodity for another as the Law of Diminishing Marginal Utility comes into effect. Thus, as the stock of one commodity diminishes, a buyer will require larger and larger quantities of another commodity to compensate for sacrificing further units of the first. This could apply to goods in alternative or competitive demand such as tea and coffee.
- The marginal efficiency of capital A price is different from a tax, because taxpayers revenue largely for the benefit of the citizens, there is difficult concept, defined by Professor Keynes as: "the relation between the prospective yield of one more unit of capital and the cost of producing that unit (General Theory of Employment, Intercell and Moms, Macmillan) The marginal efficiency of capital is the prospective yield on investment and is closely related to the rate of interest.
Price and value
Data response 2
|Units of a commodity||Price||Marginal utility|
|Commodity A||Commodity B|