Real Life Examples of Economic Principles

Five economic concepts, principles and models

with Real Life Examples

Consumer Surplus:

It is the difference between the total amount that consumers are willing to pay for a good or service and the total amount that they actually do pay (i.e. the market price)

Consumer Surplus is indicated by the area under the demand curve and above the market price.

Example:

1) I went to purchase a Laptop and the price which is mentioned is 41,000 and I was ready to buy that Laptop at the price of maximum 38,000 but the shopkeeper gives the Laptop at 36,000. In this incident I got 2,000 as consumer Surplus.

2) I purchased a Mobile Phone and the price which is mentioned is 14,000 and I was ready to buy that Mobile Phone at that price but suddenly I got a coupon which gives 1,000 off, which was my Consumer Surplus.

Producer Surplus:

It is the difference between what producers are willing and able to supply a good for and the price they actually receive.

Producer surplus shown by area above the supply curve and below the market price.

Example:

1) Many days ago I had a bike that I wanted to sell and the price that I wanted is 30,000 but in “OLX” I had mentioned the price 40,000 and the bike was sold at 36,000. In which 6,000 is my Producer Surplus.

2) Many years ago I sold 10 PC Game in 1,200 whereas I wanted to sell that in 1,000. In this 200 was my Producer Surplus.

Opportunity Cost:

We make choices every day we have to, as we have limited resources but so many wants. We therefore have to decide which wants we will satisfy and those we will not.

Example:

            1) I go to purchase Coco Cola or Pepsi and I purchased Pepsi, then the price of Coco Cola was my opportunity cost.

            2) When I have to choose a mobile between Motorola and Redmi and I choose to buy Motorola then the price of Redmi will be opportunity cost.

Elasticity:

            Elasticity is a measure of how much buyers and sellers responds to changes in market condition. If the quantity demanded changes a lot when price change a little product is said to be elastic.

Example:

            1) When I have to choose a mobile between Motorola which cost me Rs. 12,000 and Redmi which costs me Rs. 15,000 with the same features and I choose to buy Motorola, It’s the example of Elasticity.

            2) I go to purchase Coco Cola then I suddenly saw Pepsi is selling with a discount, as both the products are similar I decided to choose Pepsi instead of Coco Cola.

People Face Trade Offs:

            To get one thing, we usually have to give up another thing.

Examples:

1) I was going to buy a “tea” but after seeing there is c”coffee” available I decided to buy “coffee” in place of “tea”. In this “tea” is my trafe-off.

2) I had gone to a where I want to order Pizza but after that I decided to take an Burger and left the Pizza. “Pizza” is my trade off.