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Questions and Answers
What does the Paradox of Value state?
What does the Paradox of Value state?
What is the definition of exchange value?
What is the definition of exchange value?
The proportion at which a commodity can be exchanged for other commodities.
What does opportunity cost mean?
What does opportunity cost mean?
The loss of potential gain from other alternatives when one alternative is chosen.
What is utility?
What is utility?
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What does marginal utility describe?
What does marginal utility describe?
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What is the law of diminishing marginal utility?
What is the law of diminishing marginal utility?
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Study Notes
Paradox of Value
- Introduced by economist Adam Smith.
- Highlights the discrepancy between value in use and value in exchange.
- Everyday examples include gems (high exchange value, low utility) versus water (high utility, low exchange value).
Exchange Value
- Refers to the rate at which one commodity can be traded for another.
- Indicates market perception of worth; influenced by supply and demand dynamics.
Opportunity Cost
- Represents the potential benefits lost when one option is selected over another.
- Emphasizes the importance of evaluating trade-offs in decision-making processes.
Utility
- Defined as the usefulness or benefit derived from goods and services.
- Essential in understanding consumer choices and satisfaction levels.
Marginal Utility
- Measures the added satisfaction gained from consuming one additional unit of a good or service.
- Influences buying decisions; typically decreases with each additional unit consumed.
Law of Diminishing Marginal Utility
- States that satisfaction gained from consumption tends to decline as quantity consumed increases.
- Key principle in economics illustrating consumer behavior and preference trends.
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Description
Explore the concept of the Paradox of Value as introduced by economist Adam Smith. These flashcards will help you understand key terms such as 'exchange value' and their implications in economics. Perfect for students and enthusiasts looking to deepen their understanding of economic principles!
