CENTRO DE COMERCIO Y SERVICIOS REGIONAL TOLIMA

SERVICIO NACIONAL DE APRENDIZAJE

BILINGUALISM PROGRAM

NAME

FORUM
1.Watch the following video, then read the text about the Paradox of Value
Visualice el video, despues lea el texto acerca de la paradoja del valor

https://www.youtube.com/watch?v=e7S8jWh6AEs&feature=emb_title

We live in a world of choices. From the smartphones we use and the food we eat, to the
clothes we wear and the music we listen to, we make decisions based on choices every
day. More often than not, our choice is based on the value of the product and, in turn, on
our willingness to pay for it. As a customer, we engage in this value exchange every
day. This blog post by Akshita Agarwal highlights how the definition of value is different
for every customer in a market economy. You may share your thoughts/comments at the
end of the blog to engage in a discussion with her.
 CENTRO DE COMERCIO Y SERVICIOS REGIONAL TOLIMA
SERVICIO NACIONAL DE APRENDIZAJE
BILINGUALISM PROGRAM

The paradox of value is famously described by pioneering economist Adam Smith. In his

treatise An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith
writes:

“The word VALUE, it is to be observed, has two different meanings, and sometimes
expresses the utility of some particular object, and sometimes the power of purchasing
other goods which the possession of that object conveys. The one may be called 'value in
use;' the other, 'value in exchange'. The things which have the greatest value in use have
frequently little or no value in exchange; and on the contrary, those which have the
greatest value in exchange have frequently little or no value in use. Nothing is more useful
than water: but it will purchase scarce anything; scarce anything can be had in exchange
for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of
other goods may frequently be had in exchange for it”.

He explains how the price of a commodity is based not only on its value-in-use but also on
its value-in-exchange. Although Smith did not name it as the ‘paradox of value’, it is
commonly used to describe the paradox today.

Most modern economists deal with the paradox of value by attempting to unify these
considerations under the concept of utility – or, how well something satisfies a person’s
wants or needs. Jeremy Bentham, a philosopher and jurist, first introduced the term
‘utility’ in the late eighteenth century in England to describe the satisfaction one receives
on consumption of a product. This concept of utility went on to become the foundation
of utilitarian theory, according to which all humans act in a way that maximizes their
satisfaction/utility and results in maximum value addition and happiness.

The paradox of value was finally resolved around one hundred years after Smith
wrote. W.S. Jevons, an economist and philosopher, introduced the concept of ‘marginal
utility’ (utility derived per additional unit of a commodity) in his paper titled 'A General
Mathematical Theory of Political Economy' (1862). He explained that it is not the total
utility but the additional utility derived from the consumption of the last unit that matters.
A commodity’s marginal utility often decreases as more of it is consumed, and so another
unit of water would give less marginal utility than another unit of diamonds.

Diminishing marginal utility is a law of economics stating that as a person increases

consumption of a product, while keeping consumption of other products constant, there is
a decline in the marginal utility that person derives from consuming each additional unit
of that product.
 CENTRO DE COMERCIO Y SERVICIOS REGIONAL TOLIMA
SERVICIO NACIONAL DE APRENDIZAJE
BILINGUALISM PROGRAM

Principles of Economics is a brilliant book for beginners to start learning about economics.
The economic concepts covered in the lesson fall under the broad bucket
of microeconomics which, in itself, is a sub-category of economics. In case you want to
learn only about microeconomics, this course offered by Khan Academy is a good starting
point.

2.Answer the following questions

Deacuerdo a lo observado en el video y al texto. Responda las siguientes preguntas

-You purchased three bars of chocolate. The utility of purchasing the first bar of chocolate
is 10 units. The utility of purchasing second bar of chocolate is 8 units. The utility of the
third bar of chocolate is 6 units. What is the total value or total utility of purchasing three
bars of chocolate?

A 8 units
B 18 units
C 20 units
D 24 units

- Who among the following economists wrote about the ‘Water and Diamonds’ paradox of
value?
A David Ricardo
B Adam Smith
C Amartya Sen
D Milton Friedman

-Amy can either eat an apple or an orange. What is the opportunity cost of eating the
apple?
A Not eating the orange
B Eating the orange
C Not eating the apple
D Eating the apple
 CENTRO DE COMERCIO Y SERVICIOS REGIONAL TOLIMA
SERVICIO NACIONAL DE APRENDIZAJE
BILINGUALISM PROGRAM

Why do you think diamonds are priced higher than water? Can there ever be a situation
where diamonds are priced equal to or maybe even lesser than water?