Opportunity cost and trade off
The cost of
something is what you gave up to get it -
opportunity cost
Cost of the best alternative.
Whenever you make a trade-off, the thing
that you do not choose is your opportunity cost.
Everything has opportunity costs.
If you just bought something, you could have always chosen to buy
something else instead. If you just chose to spend your time in a
particular way, you could have always done something else. "Something
else" is your opportunity cost.
Trade-offs create opportunity costs
when we sacrifice one thing to obtain
another, that's called a trade-off.
Example: one year ago, I decided
to buy a bike but my parents told me to buy a scooty, so that me and my sister
can use it.at the end I buy a scooty because of my parents.
Then I faced trade-off.
And buy scooty instead of bike is the
opportunity cost.
Example: 3 years ago my cousin
marriage was held and on the same day my first year graduation exam was also
there. My cousin sister was deeply attached with me. A great trade-off was
faced by me on that day. At last I choose to gave the exam.
Consumer surplus
It is the difference between
the amount that a consumer is willing to pay and the
amount that he actually pays for the commodity.
·
willingness to pay: the maximum amount that a buyer pays for commodity.
Example: I am from a middle
class family. Once I decided to buy a laptop and my father told me that he is willing
to pay 23,000 Rs but I spend 21,500 RS. for the new laptop. the remaining
1500 RS was my consumer surplus.
Example: last year on my mom’s
birthday I decided to give a gift and I was willing to buy a gift. But I had 5,600
Rs only so I decided to buy a silk saare when I asked to shopkeeper about the
price of silk saare he told it costs 4,100 Rs. So the remaining value 1,500 Rs
was my consumer surplus.
Customer satisfaction and producer surplus
Customers
satisfaction from a product or a service based on whether their need is met
effortlessly, in a convenient way that makes them loyal to the firm.
The degree of satisfaction provided by the goods or
services of a company as measured by the number of repeat customers.
A producer surplus is a
difference between how much of a good the producer is willing to supply versus
how much he receives in the trade. The difference or surplus amount is the
benefit the producer receives for selling the good in the market. A producer
surplus is generated by market prices in excess of the lowest price producers
would otherwise be willing to accept for their goods.
Example: my father runs a business
of spare parts for tractors. And some of the parts are manufactured in the workshop.
Silencer is most expensive and important tool of a tractor. And in our workshop
we use good quality material for making the silencer that’s why the cost of
silencer is high in comparison with another shop’s price of silencer. But customer
feedback is saying that silencer life of our workshop is very long than another
shops silencer.
So customer
satisfaction can help to increase the producer surplus.
Example: before coming to Bangalore
I thought I would buy a new phone and sell the old one. And decided on selling
price of old phone at 6,700 Rs. A friend of mine came to me and told me that a
friend of his wants to buy a phone. And he is willing to pay 7,800 Rs. So I sold
the phone to him. 1,100 Rs. Is my surplus. Few days ago, that person called me
and told that he was satisfied with my phone and happy to buy that phone from
me.
Credits: www.shmoop.com
www.businessdictionary.com
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