1.1: Lecture
Before you watch the video below, think about the definition of value. Is value determined by the importance an individual places on a good? Think of how you make economic decisions, do you attach numerical valuations to them? Contemplate why essential goods can be very cheap, while unnecessary luxuries can be very expensive. This very simple insight can help us understand value and human behavior. As you watch Dr. Saifedean's lecture, pay attention to what opportunity cost means, and why it flows from scarcity.
While we will discuss exchange in more detail later in the course, the concept of free exchange is introduced here to illustrate that differing subjective valuation is the only way to explain how trade takes place. If both parties benefit from a transaction and agree to partake in it, the cause must be that they do not have differing valuations of the exchanged goods. After watching the video in its entirety, reflect on the meaning of ordinal valuation, and how it is possible to value things without attaching numerical values to them.
- Goods that offer utility but are not scarce are non-economic goods
- Value is subjective, and subjective valuation happens at the margin.
- There is a difference between valuing in the aggregate and valuing at the margin.
- Increased quantity can lead to an increase in utility, but a decrease in marginal utility.
- Cardinal valuation is not possible in economics.
- When demand for a good exceeds supply, a good is scarce.
- Scarcity imposes choices, and choices require valuation.
- Scarcity drives the individual to economize in their use of the good.
- Scarcity results in all economic goods having an opportunity cost.
- Scarcity forms the basis of all economizing and economic reasoning.
- As humans have more of something, the marginal utility they place on it decreases.