Paradox of Value Flashcards

Questions and Answers

What does the Paradox of Value state?

Things with high exchange value hold the greatest utility

Things with great value in use have little or no value in exchange (correct)

Things with great value in use have high value in exchange

Things with little value in use have little value in exchange

What is the definition of exchange value?

The proportion at which a commodity can be exchanged for other commodities.

What does opportunity cost mean?

The loss of potential gain from other alternatives when one alternative is chosen.

What is utility?

The state of being useful, profitable, or beneficial. Signup and view all the answers

What does marginal utility describe?

How much pleasure or satisfaction is gained from an increase in consumption. Signup and view all the answers

What is the law of diminishing marginal utility?

The satisfaction or benefit gradually decreases with the level of consumption. Signup and view all the answers

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.

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!