CHAP3-BASIC CONCEPTS OF ECONOMIC

• Human Wants


  Desires of human beings for goods and services
• Characteristics of Human Wants


  • Unlimited
  • Repeated
  • Differ with gender
  • Can be satisfied
  • Competitive
  • Complementary
  • Varying nature
• Classification of Wants


  • Necessaries
  • Comforts
  • Luxuries
• Necessaries


  Goods and services considered indispensable, including necessaries of life, necessaries of efficiency, and conventional necessaries
• Comforts


  Wants whose satisfaction does not increase efficiency but whose non-use decreases efficiency
• Luxuries


  Goods used for leading a luxurious life, including harmless and harmful luxuries
• Goods


  Desirable things that satisfy human wants and have exchange value, including both material and non-material goods
• Classification of Goods


  • On the basis of nature (material, non-material)
  • On the basis of value (free, economic)
  • On the basis of use (consumer, capital, final, intermediate)
• Material Goods


  Goods that can be touched or seen and have a definite shape and size
• Non-Material Goods


  Intangible goods that cannot be touched or seen but satisfy human wants, such as services
• Free Goods


  Gifts of nature that do not possess exchange value
• Economic Goods


  Goods that are not freely available and have exchange value
• Types of Consumer Goods


  • Single-use
  • Durable-use
  • Semi-durable
  • Services
• Capital Goods


  High-value goods used to produce other goods and services for several years, involving depreciation
• Difference between Consumption Goods and Capital Goods
• Final Goods


  Goods used by ultimate users, either for final consumption or final investment, and do not undergo further transformation
• Types of Final Goods

  • Consumer goods
  • Capital goods
• Intermediate Goods


  Goods used as raw material for production of other goods or for resale in the same year
• Characteristics of Intermediate Goods
• Intermediate goods


  • Goods used up for producing other goods
  • Goods resold during the same year of purchase (non-factor inputs)
• Intermediate goods


  • Sugarcane purchased by a sugar mill
  • Sugar purchased by a wholesaler from a sugar mill
• Final goods


  • School bus
  • School building
  • Tractor purchased by a farmer
  • Machine purchased by a production unit
  • Books purchased by a student
  • Sewing machine purchased by a tailor
  • Classroom furniture
  • Stationery purchased by students
• Intermediate goods


  • Diesel
  • Goods essential for building maintenance (e.g. paint, cement)
  • Diesel purchased by a farmer
  • Spares purchased by a production unit
  • Books lying with a bookseller
  • Needles, thread purchased by a tailor
  • Duster, chalk, marker pen purchased by a school
• Final goods


  • Goods used either for consumption or final investment
  • Goods ready for use by final users (no value added)
• Intermediate goods


  • Goods used up for further production or meant for resale
  • Goods that lose their identity in the production process
• The value of final goods is included in national income, but intermediate goods are not
• Final goods lie outside the production process, while intermediate goods remain within the production process
• Capital goods


  Fixed assets used in the production of consumer goods
• Perishable goods


  Goods that must be consumed within a short span of time
• Durable goods


  Goods that can be consumed over a long period of time
• Private goods


  • Goods consumed by individual consumers
  • Goods that are rivalrous and excludable
• Public goods


  • Goods consumed/used by a group of individuals collectively
  • Goods that are non-excludable and non-rivalrous
• Services


  • Economic activities performed by one individual or organisation for the benefit of another
  • Intangible, perishable, produced and consumed simultaneously, inseparable from producers
• Services cannot be stored and saved, unlike goods
• Utility


  The want-satisfying power or satisfaction derived from the consumption of a good or service
• Utility


  • Subjective
  • Relative
  • Has no real existence
  • Abstract
  • Not necessarily related to pleasure
• Types of utility


  • Form utility
  • Place utility
  • Time utility
  • Service utility
  • Possession utility
  • Knowledge utility
• Marginal utility


  The net addition to total utility from consuming one more unit of a good
• Total utility


  The sum total of satisfaction derived from consuming various quantities of a good
• Value


  • Value in use (want-satisfying capacity or usefulness)
  • Value in exchange (exchange value in terms of other commodities)