Basic Concepts of Microeconomics > Value

Maharashtra State Board: Class 11

Introduction

Economics studies how people value resources and goods. Two important approaches to value are value-in-use and value-in-exchange.

Maharashtra State Board: Class 11

Meaning – Value-in-use is the usefulness or utility a good provides to people
Explanation: Some goods are vital for daily life but are freely available, so they do not command a price.
Example: Sunshine is essential for life (high value-in-use), yet it is free of cost.
Type of Good: Free Good (highly useful, no price)

Maharashtra State Board: Class 11

Meaning: Value-in-exchange refers to what a good can be traded or sold for, usually measured in money.
Explanation: Some goods are not essential but are rare or desirable, so they fetch a price in the market.
Example: Diamonds are not necessary for life (low value-in-use) but are expensive (high value-in-exchange).
Type of Good: Economic Good (commands a price)

Maharashtra State Board: Class 11

Fig: Water-Diamond Paradox

Explanation: Some goods (like water) have high value-in-use but low exchange value because they are abundant. Others (like diamonds) have low value-in-use but high exchange value because they are rare and in demand.

Maharashtra State Board: Class 11

Maharashtra State Board: Class 11

Value-in-use = usefulness or utility to people; often not linked with price.
Value-in-exchange = what something can be traded for; determines the market price.
A good may have high value-in-use but little or no exchange value, and vice versa.
Scarcity and exchangeability, not just usefulness, influence market value.