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Some Basic Concepts, Stocks, Flows

Some Basic Concepts
Introduction
In Economics, there are certain concepts and terms. Their knowledge is indispensable prior to the start of study of principles of economics. There is a set of divergence in the meaning of these terms as used in normal life and in economics. To make the study of economics unambiguous, it is practical to comprehend these basic concepts or terms. Some major concepts are discussed in this chapter.

Goods

Goods mean material merchandise which can be witnessed felt and shifted. Goods are classified into material and non-material goods. Material goods are tangible, they can be noticed, handled and relocated. On the contra, non-material goods are intangible and they do not possess any character or power and cannot be observed, fingered or transmitted. Services of all types of goods such as doctors, engineers, lawyers, teachers etc., are non-material goods. But both the types have values in monetary terms.

Economic goods are those which has price and value. Their supply is generally lesser than the demand. Non-Economic goods are price free goods such as free gifts which has no price and are unlimited in supply. Air, water, light and heat are some examples of non-economic goods.

Consumer goods are those which are readily be consumed and satisfies the needs to the customers directly. Whereas Producer's goods such as machinery, plants etc., serves the customers directly or indirectly. They help in production of other goods.

Utility

The needs fulfilling power of a product is called utility. It is a quality possessed by a product or service to satisfy human requirements. Utility is based on the following types. They are

  • Forms Utility - When utility is created by changing its shape or form and consumed is termed as form utility. For instance, a wood is turned into a shape of furniture.

  • Place Utility - With the example given above, if the furniture is taken to the work place, it becomes place utility.

  • Time Utility - When a product is warehoused for the purpose of economic boom, it created time utility.

  • Service Utility - When the professionals does service according to the needs of the customers forms the service utility.

  • Possession Utility - If for instance, an Economics book on principles is been possessed by an economic student, then it creates possession utility.
Measuring Utility

Economist Marshall states that the utility of a commodity is measured in monetary terms. For instance, if the utility of a stool is equal to $ 50 and that of a chair is $ 100, then the utility of one chair is equal to twice of stool utility.

Value

Value and Value-in-use are divergent meanings. Value in general means price value. For instance, if we are hungry and need food and nearby is a fruit tree which is easy accessible, then eating a fruit from the tree quenches hunger. This is known as Value-in-use. In economics value means value in exchange, where goods and services are exchanged for some consideration.

Value in Price

In general, the meanings of value and price is the same, which is money. In economics, value and price are two different terminologies. Price is value articulated in terms of money. Value is uttered in terms of other goods. Value is virtual concept in association to the concept of price. It means there cannot be a general rise or fall in values but prices can have rise or fall.

Wealth

Wealth means money, property, gold etc. But in economics it is used to portray all things that have value. For a product to be called wealth, it must posses utility, scarcity and transferability. In the event of lacking even one quality it cannot be connoted as wealth.

Forms of Wealth

  • Individual Wealth - Wealth owned by individuals is called private or individual wealth. Eg: House property, Gold, Vehicle Etc.

  • Social Wealth - Goods owned by the society as a whole such as Temples, Roads, Forests Etc.

  • National or Real Wealth - It includes individuals, society as a whole and its wealth. It comprises of material assets possessed by the society. National wealth is the real wealth.

  • International Wealth - The UNO, UNESCO, WHO, IMF, World Bank consists of International wealth since all nations contribute towards the benefit of these organisations.

  • Financial Wealth - Financial wealth is holding of money, stocks, bonds, etc. by individuals in the society. Financial wealth is expelled from national wealth. This is because money, stocks are held by individuals as wealth are claims against one another.
Stocks and Flows

Stocks variable and flow variable may be distinguished as follows. Stock variable has no time measurement. Its value is determined at some point in time. A stock variable does not engage any stipulation of any exact span of time. Conversely, a flow variable has a time measurement. Hence national income is a flow and national wealth is a stock. For instance, Money is a stock and expense is a flow. Certain variables are in the form of flows such as Dividends, Taxes, Imports, Exports, Salaries, Wages etc.


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