Basic Concepts of Microeconomics-Part II
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Explain the Paradox of Value.Marks:5
To understand the Paradox of Value we have to understand Value-in-Use and Value-in-Exchange.
Value in Use: This value of a commodity relates to the value an individual places on the consumption of the commodity. For example, necessities like food and water have a very high value-in-use.
Value-in-Exchange: This value of a commodity relates to its worth in terms of exchange. It relates to how much of the commodity can be exchange for other goods.
The value-in-exchange is not necessarily correlated with value-in-use. For example, water has a very high value-in-use as it is a necessity but its value-in-exchange is low. Whereas, a diamond has low value-in-use but high value-in-exchange. This lack of relation between value-in-use and value-in-exchange is termed as the paradox of value.
What is a market? What are the types of market.Marks:3
A market is a mechanism in which the buyers and sellers meet and strike a bargain.
The types of markets are:
- Goods Market: In this market goods and services are bought and sold. For example car market, cloth market, etc.
- Factor Market: In this market, factor services are bought and sold. For example labour market, capital market, etc.
Classify the following as stock and flow:
a)Wealth – Stock
b)Investment – Flow
c)Debt – Stock
d)Income - Flow
What is the equilibrium price.Marks:1
The equilibrium price is the price at which quantity demanded and quantity supplied are equal and there is no pressure on the price to change.
Name the basic entities in an economy?Marks:1
The basic economic entities in an economy are households, firms and the government.