What is wealth?

Wealth is determined by taking the total market value of all physical and
intangible assets owned, then subtracting all debts. Essentially, wealth is the
accumulation of resources. Specific people, organizations and nations are said to
be wealthy when they are able to accumulate many valuable resources or goods
 Advantage and disadvantage .

Scarcity - definition
The problem of scarcity is regarded as the fundamental economic
problem arising from the fact that, while resources are finite, society's
demand for resources is infinite. Scarcity is a relative rather than an
absolute concept - water is more scarce in the desert and less scarce
in the rainforest.

Inductive method:

Theory of consumer behavior:

Basics

 The Theory of Consumer Behavior, like the Law of Demand, can be explained by the
Law of Diminishing Marginal Utility.
 Consumer Behavior is how consumers allocate their money incomes among goods
and services.
 Consumer Choice and Budget Constraint:

 Rational behavior:
o The consumer is a rational person, who tries to use his or her money income to
derive the greatest amount of satisfaction, or utility, from it. Consumers want to get
"the most for their money" or, to maximize their total utility. Rational behavior also
"requires" that a consumer not spend too much money irrationally by buying tons of
items and stock piling them for the future, or starve themselves by buying no food at
all. Consumers (we assume) all engage in rational behavior.
 Preferences:
o Each consumer has preferences for certain of the goods and services that are
available in the market. Buyers also have a good idea of how much marginal utility
they will get from successive units of the various products they might purchase.
However, the amount of marginal & total utility that the people will get will be
different for every individuals in the group because all individuals have different taste
and preferenes.
 Budget Constraint:
o The consumer has a fixed, limited amount of money income. Because each
consumer supplies a finite amount of human and property resources to society, he or
she earns only limited income.
o Every consumer faces a budget constraint
o There is infinite demand, but limited income
 Prices:
o Goods are scarce because of the demand for them. Each consumers purchase is a
part of the total demand in a market. However, since consumers have a limited
income, they must choose the most satisfying combination of goods based partially
on prices. For producers, a lower price is needed in order to induce a consumer to
buy more of their product.
Utility Maximizing Rule:

 To maximize satisfaction, a consumer should allocate his or her money so that the
last dollar spent on each product, yields the same amount of marginal (extra) utility.
 When marginal utility are equivalent, consumer is in a equilibrium.
Marginal Utility per dollar:

 Rational consumers should compare extra utility from each product with its added
price.
 Although spending all of one's income yields the greatest total utility, saving can be
regarded as "commodity", that yields utility.
 MU/$ is found by taking the Marginal utility per good over the price of each good.
o This can be used to determine a buying pattern, and to help figure out what goods
will be bought when.


o If marginal utility increases, then total utility increases

o If marginal utility decreases, then total utility decreases