1.Imagine the last sale in a mall you went to. There was a huge discount on every brands and there was a sea of people to avail those. The price was low and the quantity demanded was extremely high.
2. The most famous item in McDonald's has gone for a price hike. Ever since, people are less indulging in that and it is no more the most famous item. The quantity demanded has decreased.
The above examples explain the concept of LAW OF DEMAND- the quantity demanded of a good decreases with increase in price and vice versa, ceteries paribus.
1. There is a great demand of seats from the best school in town among parents. In this scenario, even if this school increases its fee to a certain extent, the demand for the seats will not decrease, given its reputation among parents.
2. Interior decoration charges for a 2bhk apartment is lets say , 2 lakhs. If suddenly, there is a change and the rate increases to 4 lakhs, the demand for it will definitely decrease.
These examples explain PRICE ELASTICITY OF DEMAND- a measure of how much the quantity demanded of a goods or service responds to a change in price of that. The first example shows inelastic demand( where quantity demanded responds only slightly to change in price) and second shows elastic demand( where quantity demanded responds substantially to changes in price.
1. You are terribly thirsty in summer, and take a sip of coke. You feel so pleasured to do that. After taking few such sips, gradually you lose the urge or pleasure of having it. The happiness decreases.
2. People going to gym for the first week are so very enthusiast. Gradually after a month, with all diets and body aches settling in, they feel less urge to continue it even if the purpose is well good. A kind of boredom or unlikeliness sets in.
These examples explain the concept of LAW OF DIMINISHING MARGINAL UTILITY- the more of a good or service one obtains in a specific period of time, the less the additional utility derived from an additional unit of the good or service.
1. An aircraft carrier has added one new craft to its flight. As a result, it has resulted in much more revenue than earlier because many many more passengers are now using it. Its profit increases over time.
2. For a place with scarcity of water, boring out a tubewll or two will not increase the water output, since there is low availability of water there.
The first example explains INCREASING RETURN TO SCALES( output increases more than proportional with increase in input). Second example shows DECREASING RETURN TO SCALES( output increase less than proportional with increase in input).
1. I am an avid foodie.I like pizza and hot dogs equally. Suppose the price of pizza increases. So I will be substituting my pizza with with hotdogs at the rate of one per day to keep the cost same while keeping the level of utility and satisfaction equal since both are my favourite.
2. Employing a robot in a science lab will cut short the number of workers by 10. This is the rate. Yet the output will be constant.
These examples explain the concept of MARGINAL RATE OF SUBSTITUTION-the rate at which one factor of production can be substituted for other factors of production, output being constant.
2. The most famous item in McDonald's has gone for a price hike. Ever since, people are less indulging in that and it is no more the most famous item. The quantity demanded has decreased.
The above examples explain the concept of LAW OF DEMAND- the quantity demanded of a good decreases with increase in price and vice versa, ceteries paribus.
1. There is a great demand of seats from the best school in town among parents. In this scenario, even if this school increases its fee to a certain extent, the demand for the seats will not decrease, given its reputation among parents.
2. Interior decoration charges for a 2bhk apartment is lets say , 2 lakhs. If suddenly, there is a change and the rate increases to 4 lakhs, the demand for it will definitely decrease.
These examples explain PRICE ELASTICITY OF DEMAND- a measure of how much the quantity demanded of a goods or service responds to a change in price of that. The first example shows inelastic demand( where quantity demanded responds only slightly to change in price) and second shows elastic demand( where quantity demanded responds substantially to changes in price.
1. You are terribly thirsty in summer, and take a sip of coke. You feel so pleasured to do that. After taking few such sips, gradually you lose the urge or pleasure of having it. The happiness decreases.
2. People going to gym for the first week are so very enthusiast. Gradually after a month, with all diets and body aches settling in, they feel less urge to continue it even if the purpose is well good. A kind of boredom or unlikeliness sets in.
These examples explain the concept of LAW OF DIMINISHING MARGINAL UTILITY- the more of a good or service one obtains in a specific period of time, the less the additional utility derived from an additional unit of the good or service.
1. An aircraft carrier has added one new craft to its flight. As a result, it has resulted in much more revenue than earlier because many many more passengers are now using it. Its profit increases over time.
2. For a place with scarcity of water, boring out a tubewll or two will not increase the water output, since there is low availability of water there.
The first example explains INCREASING RETURN TO SCALES( output increases more than proportional with increase in input). Second example shows DECREASING RETURN TO SCALES( output increase less than proportional with increase in input).
1. I am an avid foodie.I like pizza and hot dogs equally. Suppose the price of pizza increases. So I will be substituting my pizza with with hotdogs at the rate of one per day to keep the cost same while keeping the level of utility and satisfaction equal since both are my favourite.
2. Employing a robot in a science lab will cut short the number of workers by 10. This is the rate. Yet the output will be constant.
These examples explain the concept of MARGINAL RATE OF SUBSTITUTION-the rate at which one factor of production can be substituted for other factors of production, output being constant.
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