Importance of Economics in Daily Life

People Face Trade-Offs

We live in a world of scarcity. There are not enough resources to do anything of our choice. We don’t have enough money to buy anything we like or not enough time to do all the works we want to do. People always need to decide in what way they can allocate their time or money or any other resources which are scarce in supply. Hence Decision Making is considered the essence of economics as resources are allocated to individuals on the basis of their decisions.

Individuals make decisions based on various ideas. For instance, consider the condition of a worker who decides how to allocate his time in between cricket match and overtime. In this case, a worker can complete his job on time and enjoy an ongoing cricket series. Or he can do overtime duty and earn more money to fulfill his needs. As we know the term that there is no such thing as free lunch, therefore here comes the concept of People Face Trade-Offs. In this case, we can see that there is a scarcity of timing. Here either the worker can choose to relax at the cost of earning or earning at the cost of relaxing.

To make a decision it is required to trade off one goal against the other. For instance, when the government of our country invests more money in the supply of guns instead of spending it on the construction of bridges, the tradeoff occurs between national security and development. When the government spends more money on guns then it has to forget the development of a country or when it spends money on bridge construction then it has to forget the security of the nation. 

Opportunity Cost

Due to the issue of scarcity of resources, people must always make the best choice. All of us have 24 hours in a day, but each one of us makes different decisions about what to do, which product to buy or how to spend our time. Every choice we make has a value to us and what determines our choices is the Opportunity Cost, which is known as the cost of the next best alternative. For instance, consider the situation of Baskin Robbins which offers a variety of flavors and you go to the ice cream parlor and particularly demand for Black Walnut. The shopkeeper ends by saying that the stocks of Black Walnut is over for the day and he is only left with Chocolate Almond. Therefore you choose to buy Chocolate Almond and the opportunity cost is the enjoyment of the Black Walnut.

Again we can take the example of the brand Matrix, which offers various hair products. If one is interested to buy Matrix Hair Shampoo and can only afford it if he does not buy the Matrix Conditioner, here the opportunity cost is the hair conditioner.

DEMAND

Demands are basically the buyers; more specifically it refers to the desire and capability of people to purchase things. When demand increases the prices begins to rise and when the price decreases, Demand increase. We can consider the example of OLA Cab, at first when it was introduced in the market it offered free services to any location in your city, due to which the market of OLA was in high demand. Later when it stopped offering free services, its market is still running but the cost is low in compared to the time when free services were offered.

Similarly, we can say that the price of a movie ticket at Cinepolis on a Friday night is likely to be expensive than the price of a ticket on Tuesday morning. We can, therefore, say that due to the weekend the Demand for a movie on Friday night is more in compared to that on Tuesday morning.

Rational People Think at the Margin

Rational People are the ones who systematically as well as purposely do the best in order to achieve their objectives. Rational people think at Margin, they know the fact that all decisions in life are not black and white but also involve shades of grey. Individuals tend to think at the margin and thus margin refers to adding one or more unit.

For example, we can say that if a person is pursuing Ph.D., then he/she will have a busy schedule from doing research activities until preparing the thesis report and attending classes. For the need of some spending money, he decides to work in his college alumni office but the problem he is facing is that he does not have enough time always to work at her college alumni office job. For this he does not need to quit his office, instead, he thinks at Margin and does the best decision i.e. whenever he has much work for his Ph.D. Research, he comes back at his working hours and completes the work. And at the same time when there is not much research work, he does over time job. Thus the overtime is the Margin which he incorporates in his work.

Similarly, in an electrical industry, the need for installing a solar power plant depends upon the cost comparison in between setting up a solar plant against the cost of importing electricity.

Ordinal Utility

Sometimes it is not possible for consumers to say whether the utility of a particular commodity is more or less useful to them in compared to the others, i.e customers cannot express his satisfaction in quantitative numbers and instead rankings are assigned to it. Thus when rankings are assigned for the satisfaction level, it is referred to as Ordinal Utility.

For example, while determining the TRP’s of Daily soap serials at the end of a week, the production team and channel display their results in a graphical figure which shows the rankings of which TV serials which are viewed most.

Another example we can take is, when any product is launched by a company, for instance when Himalaya introduces a new face cream, therefore to analyze its sales at various regions of the country, the company displays its sales report in a graphical format which shows the sales rate as per ranking wise for various regions.