Saturday, August 11, 2018

Economics is all around you.The question is how can we feel economics in our daily lives?


1) Trade-off
A situation in which you are giving up something in order to get something is called trade-off. 

Example 1.1-Two years ago when I went to buy a car I was confused between i10 and i20. Both the cars have its own specifications. Atlast I ended up buying i10.

Example 1.2-During my office days I remember that once I had an important meeting and on the same day it was my parents’ 25th anniversary. After a lot of thoughts I had to stay back to attend my meeting.

2) Opportunity cost
It is defined as the cost of something which we are sacrificing to get something. In other words trade-off creates opportunity cost.

Example 2.1- Ref to 1.1

In example 1.2 when I bought i10 I sacrificed i20. With i20 I sacrificed the specifications which i20 had. That is the cost which I sacrificed to get i10.

Example 2.2- Ref to 1.2

In example 1.2 when I attended the meeting and sacrificed my parents’ anniversary I sacrificed the enjoyment and entertainment which I could have in the party. That is the opportunity cost.

3) Consumer surplus
It is defined as the difference between the price that a consumer is willing to pay and the consumer is actually paying. It is the satisfaction that the consumer is getting on the product that he is not having to pay.

Example 3.1- Two years back I bought my first car Hyundai i10. When I went to buy I thought of not extending my budget more than 5 lakhs. But that time when I went to buy I got a discount of 10% due to Hyundai-Tcs collaboration and after some negotiations I got further discounts of 5%. I10 that time was 4.80 lakhs. After discount I got it in 4 lakhs. I almost saved 80 thousands. That 80 thousand is my consumer surplus.

Example 3.2- 7 months back I bought a new phone. I thought that I will not spend more than 20 thousand. When I went to a shop I saw many models out of which I found Samsung j7 pro to the appropriate one. J7 pro was coming in a price range of 18000. Upon that the retailer gave a certain amount of discounts and I ultimately I got it in 17500. This is 2500 is my  consumer surplus.

4) Producer Surplus
It is the difference between the the price that the producer is willing to sell and the product actually sold.

Example 4.1- Before buying the new phone I sold my old phone. I made up my mind that I would sell my phone at rs 5000 but I dint reveal the price. My friend saw the phone and after seeing the condition of my phone he was willing to buy it for 6000. The extra 1000 Rs. That I made was my producer surplus.

Example 4.2- During my engineering days after every semester we all used to sell our books. After 1st semester since I was new to the system I did not have any idea about how much I could get by selling the books. So I thought that I will sell those books at atleast  rs 500. But after going there I sold those books at Rs 1500. So this Rs 1000 is my producer surplus.

5) Principal of diminishing marginal utility
The more of a good that one consumes in a specific period of time the less additional utility derived from the additional unit. That utility derived from the additional unit is called marginal utility and this diminishes with more consumption of the particular goods within a specific period of time.

Example 5.1-After attending 4 hours of lecture I was very hungry. So I went to CCD and ordered a pack of cookies. When I had the first cookies it had a high satisfaction. When I had the second one my appetite was getting more satisfied. After having the third my stomach became almost full. When I was having the fourth one I was getting less benefit and less satisfaction and the utility deriving from that additional 4th cookies decreases.

Example 5.2-When Bahubali 2 was released I went to watch the movie with my friend with great enthusiasm. My friend liked the movie so much that he wanted to see that film again. When he told me that he wanted to go again I refused him because after watching for the first time that level of satisfaction or that utilty had already decresed. So I could not watch for the second time.


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