Basic Economic Concepts: Goods, Wealth, Income, Utility, Value and Price

Before moving to the theory of demand, production and value in later chapters, every student of BIEAP economics must be clear about six basic terms that recur throughout the subject.

Goods. A good is anything, tangible or intangible, capable of satisfying a human want. Goods are classified in several ways:

• Free goods (air, sunlight, rainwater) are available in unlimited supply relative to want and carry no price, versus Economic goods (food, clothing, land) which are scarce and therefore command a price.
• Consumer goods (directly satisfy a want, e.g., bread, a shirt) versus Producer/Capital goods (used to produce other goods, e.g., a tractor, a factory machine).
• Material goods (physical, tangible, e.g., a book) versus non-material goods or services (intangible, e.g., the services of a doctor, teacher or transporter).

Wealth. Wealth is the stock of economic goods — material, transferable, scarce and having money value — owned by a person or a nation at a given point in time. A person's house, land, jewellery, bank balance and shares together make up their wealth at that moment.

Income. Income is a flow concept — the earnings (in money or in kind) that a person or a factor of production receives over a period of time (a day, a month, a year) in return for productive services rendered. Wages (for labour), rent (for land), interest (for capital) and profit (for entrepreneurship) are all forms of income. The essential difference from wealth is: wealth is a stock measured at a point in time; income is a flow measured over a period of time. When such flows are added up for an entire country over a year, the result is called National Income.

Utility. Utility is the want-satisfying power of a good or service — the satisfaction, real or perceived, that a consumer expects to get from consuming it. Two features of utility are important to remember: (i) it is subjective and relative — the same good can have different utility for different people, or for the same person at different times; and (ii) it is ethically neutral — utility is not the same as usefulness or moral approval. A cigarette has utility for a smoker even though it is harmful to health, and a detective novel has utility for a reader even though it teaches nothing. Total Utility (TU) is the total satisfaction from consuming a given quantity of a good, and Marginal Utility (MU) is the additional satisfaction from consuming one more unit, roughly $MU = \dfrac{\Delta TU}{\Delta Q}$ — these are studied formally in the Theory of Consumption chapter that follows. …