concepts of economics with examples

Opportunity Cost: It is the next best alternative of choice while making a decision or we can say something we sacrifice to get something we like or choose.

For example-1. As our exams are nearby, we want to study overnight compromising the time of our sleep. We have to make a choice whether to study or to sleep. If we choose study, our opportunity cost is sleep, but if we sleep our opportunity cost is study.

2. Like me many students have taken a decision to take a PGDM degree, instead of doing a service or getting into a job, but as we already taken admission in a college, so Doing job is our opportunity cost.

Rational people think at a margin: People want to allocate their income or resources in such a way, so that they can get the maximum benefits or outputs from it.

For example:1. When there is a discount in a certain shop stating that if you buy products for or above RS.2000 you will get a discount of RS. 300. So, to get that discount people usually buys products which are less required so that they can get that discount.

2. In different parks, having different price offers for rides. Such as for RS.500-5 rides in one, RS.500-7 rides in another, and for RS.500-there are 10 rides in other. So, people will go to the amusement park where 10 rides are available to maximise their benefits.

Cardinal Utility- The utility in which the satisfaction derived by the customers from the consumption of good or service can be expressed numerically. It is measured in terms of Utils.

For examples: Suppose we went to Darjeeling, and after coming someone asked me about the place and I scaled it in terms of ratings of 5. Out of 5, I gave 4 based on my satisfaction

Ordinal Utility- It is not the measure of utility in terms of quantity as in the case of cardinal utility but can be ranked in terms of high and low.

For example: Suppose I visited a Shillong along with Darjeeling, and someone asked me which is greater and on the basis of my satisfaction I rated Shillong highly between two.

Consumer Surplus: It is the difference between what the consumer actually pays and what he wants to pay.

Producers Surplus: It is the difference between the price in which the producer sells the product and what he wants to sell.

For example:1. I went to buy a headset, the seller quoted a price of RS.1800, but I actually wanted to buy it for RS.1500. I started bargaining from 1000 RS, then the seller sold the headset to me at RS.1200. The difference between 1500 and 1200 is the consumer’s surplus.

2. When a shopkeeper sells a product which he bought for RS.15000, but sells it for RS.18000. The difference between RS.18000-15000 is the producer’s surplus.

LAW OF DIMINISHING MARGINAL UTILITY: When we increase the consumption of a product our level of satisfaction decreases with more consumption.

For examples:1. I was fond of Chocolates, when my cousin came from USA he brought so many chocolates for me, I was continuously eating chocolates for 2 weeks, later on after consuming so many chocolates for continuous 2 weeks, the marginal utility got decreased day by day.

2. When I was in my graduation days, one day I was listening a lecture for 5 hours, when the lecture started I was very much interested in listening but with every passing time my marginal utility decreased with time.