1.
Rational people
think at marginal
Example 1: You go
to a restaurant, and noticed that the price of Chicken Biriani and the price of
Chicken Fried Rice is same and you order for Chicken Biriani. The reason behind
it is, Biriani gives you more satisfaction than Chicken Fried Rice. The extra
satisfaction which you get from Briani, that is called margin.
Example 2: When
you return home from outside in a hot summer noon, you prefer cold water
instead of hot milk, the extra satisfaction which you get from cold water, that
is margin.
2.
When Income increase,
demand of inferior goods will decrease
Example 1: If your
current income is Rs. 30000/- per month, then you buy Miniket Rice, and when
your income will be Rs. 60000/- per month you will buy Basmati Rice. Here
Miniket Rice is an inferior goods and its demand decrease when consumer’s
income increase.
Example 2: You
daily commute to your office from home by bus. Now you get a promotion. From
the next day, you will start commuting via taxi. In this example, bus is an
inferior good.
3.
Utility
Utility means the
satisfaction derived or expected to be derived from the consumption of goods
and services.
Example 1: In a
cold winter night, after reaching your home from outside, you drink a glass of lukewarm
milk. The satisfaction you get from the milk is called utility
Example 2: You
took admission in a college. After completing the course, the satisfaction you
will get from the course, that is utility.
4.
Principle of
diminishing marginal utility
The more of a good
that one obtains in a specific period of time, the less the additional utility
derived from an additional unit of goods.
Example 1: If you
consume your favourite food everyday, then you will not like the food after one
week. And if you consume that food three or four times in a day for everyday,
then you will not like the food after three or four day.
Example 2: Many
hotels provide unlimited free breakfast, because they know you can’t be able to
consume more than a certain amount of food because of diminishing marginal
utility.
5.
Marginal rate of
substitution (MRS)
It is the rate at
which a consumer can give up some amount of one good in exchange for another
good to maintain the same level of utility.
Example 1: If you
want to get good marks, you have to study well, so you should increase the time
of studying in a day, and decrease the time of playing.
Example 2: If you
want to earn more money, you have to work hard and for a long time. So you have
to compromise your time which you give to your family.
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