DIFFERENT CONCEPTS OF ECONOMICS WITH RELATED EXAMPLES

1. People Face Trade Offs:

 It means foregoing one for the sake of another. In simple words, if we want to get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading offs one goal against another.

Take an example of student who has completed his graduation, so after graduation, he has two choices; one to go for jobs and another one to go for higher studies. So, in this case, he has to prefer one over the other.  

Now, Take another example of a country who has two choices, one is to produce guns and another one is to build bridges. 

So, in both cases, both are facing trade offs, i.e; both have to give up one thing for the sake another beacause they have limited resources.

2. Law Of Demand:

Demand is a desire for a commodity, ability to buy it at the given price in the given time.

So, if we look at the buyer's side, there is an inverse relationship between the price of the goods and the quantity buyers are willing to purchase which means when the prices of a good falls, people buy more of it and visa versa.

For example: When the price of an apple goes from rs.95/kg to rs.75/kg , the quantity demanded will go up. Many people who were not willing to buy apples at high price are now willing to purchase them at rs.75/Kg.

One the other side, if we look at the seller's side, then there is a direct relationship between the price and quantity supplied of good.

For example: if the price of a goods increased, then the seller will increase the quantity supplied in order to earn more profit.

3. Consumer Surplus:

It is basically the difference between the price consumer is willing to pay and consumer actually pays.

For example: If a lady goes to market to buy a gift for her friend and she chooses a gift and is willing to pay Rs. 700 for the same. But the shopkeeper offers a price of Rs.500, the the difference between the two prices will be that lady's consumer surplus.

Let's take another example, A man is determined to buy a laptop with specific features and is willing to spend up to Rs.50000. As he searches through various electronic stores, he finds one for Rs.40000 with same specifications he was looking for. So, in this case Rs. 10000 is his consumer surplus.

4.Law Of  Diminishing Returns:

Law of diminishing return explains that when more and more units of variable inputs are employed on a given quantity of fixed inputs, the total output may initially increase at increasing rate and then at constant rate, but it will eventually increase at diminishing.

Let's take an example of a newly opened cafe. At first, there was 2 chefs to prepare meals. After some time 2 more chefs were hired and the same process continued and the work per chef consequently gets reduced. So in this case, the work might get slowed down, an even though the number of dishes might increases the overall production rate could be very slow.

For example: There is a factory where at first there is only few labor(variable factor) are there. But once you start adding more and more labors for work to the factory(fixed variable) without increasing the size of the factory, the output will start diminishing due to lack of  specialization because of fixed variable.

5. Price Elasticity Of Demand:

It is a measure of the responsiveness of the quantity demanded of a good or service to the change of its price keeping other factors fixed.

To understand this concept better, let's take an example.

If a Porche increases in price , demand will probably be elastic because of its high prices. People will look for another alternatives.

Let's take another example of chocolates, there are lot of alternatives of chocolates available in the market. So, if the price of one chocolate rises, then the price elasticity of that product will be high because of the substitutes available.