1. Value:
Ordinarily, the concept of value is related to the concept of utility. Utility is the want satisfying quality of a thing when we use or consume it. Thus utility is the value-in-use of a commodity. For instance, water quenches our thirst. When we use water to quench our thirst, it is the value-in-use of water.
In economics, value means the power that goods and services have to exchange other goods and services, i.e. value-in-exchange. If one pen can be exchanged for two pencils, then the value of one pen is equal to two pencils. For a commodity to have value, it must possess the following three characteristics.
a. Utility:
It should have utility. A rotten egg has no utility because it cannot be exchanged for anything. It possesses no value-in-exchange.b. Scarcity:
Mere utility does not create value unless it is scarce. A good or service is scarce (limited) in relation to its demand. All economic goods like pen, book, etc. are scarce and have value. But free goods like air do not possess value. Thus goods possessing the quality of scarcity have value.
c. Transferability:
Besides the above two characteristics, a good should be transferable from one place to another or from one person to another. Thus a commodity to have value-in-exchange must possess the qualities of utility, scarcity and transferability. 2. Value and Price:
In common language, the terms ‘value’ and ‘price’ are used as synonyms (i.e. the same). But in economics, the meaning of price is different from that of value. Price is value expressed in terms of money. Value is expressed in terms of other goods. If one pen is equal to two pencils and one pen can be had for Rs.10. Then the price of one pen is Rs.10 and the price of one pencil is Rs.5.
Value is a relative concept in comparison to the concept of price. It means that there cannot be a general rise or fall in values, but there can be a general rise or fall in prices. Suppose 1 pen = 2 pencils. If the value of pen increases it means that one pen can buy more pencils in exchange.
Let it be 1 pen= 4 pencils. It means that the value of pencils has fallen. So when the value of one commodity raises that of the other good in exchange falls. Thus there cannot be a general rise or fall in values. On the other hand, when prices of goods start rising or falling, they rise or fall together.
It is another thing that prices of some goods may rise or fall slowly or swiftly than others. Thus there can be a general rise or fall in prices.
3. Wealth:
In common use, the term ‘wealth’ means money, property, gold, etc. But in economics it is used to describe all things that have value. For a commodity to be called wealth, it must prossess utility, scarcity and transferability. If it lacks even one quality, it cannot be termed as wealth.
Forms of Wealth:
1. Individual Wealth:
Wealth owned by an individual is called private or individual wealth such as a car, house, company, etc.
2. Social Wealth:
Goods which are owned by the society are called social or collective wealth, such as schools, colleges, roads, canals, mines, forests, etc.
3. National Wealth:
National wealth includes all individual and social wealth. It consists of material assets possessed by the society. National wealth is real wealth.
4. International Wealth: The United Nations Organisation and its various agenciesare internationalwealth because all countries contribute towards their operations.
5. Financial Wealth:
Financial wealth is the holding of money, stocks, bonds, etc. by individuals in the society. Financial wealth is excluded from national wealth.
Some differences
Wealth and Capital:
Goods which have value are termed as wealth. But capital is that part of wealth which is used for further production of wealth. Furniture used in the home is wealth but given on rent is capital. Thus all capital is wealth but all wealth is not capital.
Wealth and Income:
Wealth is a stock and income is a flow. Income is the earning from wealth. The shares of a company are wealth but the dividend received on them is income.
Wealth and Money:
Money consists of coins and currency notes. Money is the liquid form of wealth. All money is wealth but all wealth is not money.
4. Stocks and Flows:
Distinction may be made here between a stock variable and a flow variable. A stock variable has no time dimension. Its value is ascertained at some point in time. A stock variable does not involve the specification of any particular length of time. On the other hand, a flow variable has a time dimension. It is related to a specified period of time.
So national income is a flow and national wealth is a stock.
5. Optimisation:
Optimisation means the most efficient use of resources subject to certain constraints it is the choice from all possible uses of resources which gives the best results, it is the task of maximisation or minimisation of an objective function it is a technique which is used by a consumer and a producer as decision-maker.