Economics is a part of our day to day life. While we do any activity in our surroundings that consists of any exchange of products or commodities, there are laws of economics being applied even without us acknowledging it. Likewise, these laws are inherently applied in the business world and that is why, we need to know what are some of the functions of economics which plays a significant role in the business domain.
1: Law of Demand: This law states that whenever there is an increase in the price of any commodity, there is a fixated rule that the demand of the same would drop down.
Example: When I was going through my under graduation, there was a point of time where the price of onion had such a gigantic hike that it enforced me to stop the usage of onion for at least 2 months.
2: Utility concept: The amount of satisfaction or delight by the consumption of any product at a point of time is what we understand by the term utility.
Example: When I came to Bangalore, I could not consume my favorite food item "Shawarma" for more than 2 months. And when I finally had it, I was 7th heaven. This states that the utility level of that product was too high for me.
3: Law of diminishing marginal utility: According to this law, when the possibly maximum level of satisfaction is attained and there no further scope of delight by the consumption of the product, thereon, any additional usage or consumption of that product starts to give a level of dissatisfaction or the utility starts to diminish for the consumer.
Example: When I had "Shawarma" after such a long gap, I was unable to curb my greed for the food item and I ordered it thrice. The first gave a great level of satisfaction, 2nd gave me comparatively lesser amount of satisfaction, but when I started with the 3rd one, I could not finish it and had to leave the remaining. Here, the satisfaction turned out to become a dissatisfaction by consuming that product.
4: Opportunity cost: Opportunity cost is the difference between the chosen option and the other available options in the lot, that has been sacrificed to get the selected one.
Example: I had to purchase a pair of shoes and the options were available in two brands; Adidas and Nike. Further, Adidas had a blue pair of shoes and Nike had black pair of shoes and both costed Rs 3000. Narrowing down further, Nike had air max technology whereas Adidas had bounce technology which gave me more level of satisfaction. So I chose Adidas, as the feature of bounce technology and also it stood under my budget price became the opportunity cost for me.
5: Rational people think at the margin: Rational people systematically and purposefully do their best they can to achieve their objectives, given the available opportunities.
-Principles of Economics
N. Gregory Mankiw
Example: I had 2 options when I decided of purchasing a bike, Apache RTR 160 and Pulsar 135. The cost of the former was 75000 and latter costed 78000. The dilemma was both of them had similar feature and comfort level. So at the end, I chose to go with Apache RTR 160 because it costed Rs 3000 less than Pulsar. Here the rationality in the thinking came when I went for the cheaper one, and since rational people think at the margin, it was inevitable and bound to happen.
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