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

Business Economics rests on a handful of basic terms that recur throughout the whole course. Getting these clear at the outset prevents confusion later, because everyday language uses several of them loosely, while economics uses them precisely.

1. Wants. A want is a desire for a good or service, backed (where it becomes economically meaningful) by the willingness and ability to pay for it. Human wants are the very starting point of all economic activity — production exists to satisfy them. Wants have three well-known characteristics: they are unlimited in number (as soon as one is satisfied, another appears), each single want is satiable (a particular want can be fully satisfied at a point in time), and they are competing and complementary (we must choose among wants because means are limited, and some wants are felt together, like a car and fuel).

2. Utility. Utility is the want-satisfying power of a good or service — the capacity of a commodity to satisfy a human want. It is important to note that utility is not the same as usefulness or morality: in economics a commodity has utility simply because someone wants it, regardless of whether it is good for them. Utility is also subjective — the same good gives different utility to different people, and to the same person at different times.

3. Goods. Goods are all the things that have utility — that is, the capacity to satisfy human wants. Economists classify them in several ways: free goods (available without payment and effort, like air or sunlight — not the concern of economics) versus economic goods (scarce, and obtainable only at a price — the main concern of economics); and consumer goods (used directly to satisfy wants, like food or clothing) versus producer/capital goods (used to produce other goods, like machines and tools).

4. Value. In economics value means value in exchange — the worth of one good expressed in terms of other goods or, most conveniently, in terms of money. It must be distinguished from value in use (the usefulness of a good, which may be high even when its exchange value is low). The classic illustration is the paradox of value (the "water–diamond paradox"): water has enormous value in use but very little value in exchange, whereas diamonds have little value in use but very high value in exchange — the difference is explained by scarcity and marginal utility, not usefulness alone.

5. Price. Price is value expressed in terms of money — the amount of money for which a good or service can be bought or sold. Price is thus the money-measure of a commodity's exchange value, and it is determined in the market by the interaction of demand and supply.

6. Wealth. In economics, wealth refers to all economic goods that have value in exchange — that is, things which are (i) capable of satisfying wants (have utility), (ii) scarce/limited in supply, and (iii) transferable (their ownership can be passed to another). Free goods like air are useful but are not "wealth" because they are not scarce and command no price. Wealth is therefore a stock of valuable, scarce, transferable goods, and should not be confused with mere money or with income (a flow over time).