INVOLVEMENT OF ECONOMICS IN REAL LIFE

There are various theories in economics that we can easily relate to our real life situations. And we can see various examples that involves a theory of economics. Following are some economic theories and examples related to them:
1) PEOPLE FACE TRADE OFFS:
It is the first principle of economics. Trade off means a decision that a customer take of buying one product and sacrificing other after comparing two goods that they want. People has to lose something to get another.

Examples to explain the concept of trade off:

• We can take the example of Samsung and Xiaomi. In recent years, two of most popular cell phone companies that doing very well in Indian market. Some takes Samsung and some takes Xiaomi. Though both are android phones of same OS version, but also have different features on which people trade off. Some go for a better camera and some go for battery life or processor. People consider the features that they want the most in their phone as the criteria for buying either Samsung or Xiaomi. Some do the price comparison. Then finally they buy any one phone which gives them desired features at the best price they can pay.

• Another example we can take, is when take admissions in any college. First we shortlist the colleges according to our grade. Then we compare the colleges on the basis of their course structure, fees, placements etc. Many time we come across, when we get confused between two colleges. Then we see what exactly would be more beneficial for us and for our future and which we can afford. And then we come to a decision to choose one college sacrificing the other.

2) PEOPLE RESPOND TO INCENTIVES:
This is another principle of economics. Incentives is factors which instigate or inspire people to act in a particular way. People have a tendency to respond to incentives which taking a decision.

Examples to explain the concept of people respond to incentives:

• Let’s take an example of Big Bazaar. Many times they give us offers like Buy 2 get 1 free. Then when we are choosing a normal product and a product with an offer of getting two at the price of price, we choose the product with the offer. That offer is incentive to us and we get attracted to that.

• For example, when price of onion rises, then the usage of onion reduces. So higher price in market also gives consumers an incentive to reduce the usage of product.

So people respond to incentives in both positive and negative way.


3) CARDINAL UTILITY AND ORDINAL UTILITY: Utility is the satisfaction or usefulness that we attain after consuming a product or using a service. There are two ways in which we can measure the utility:

• Cardinal utility: Cardinal utility can be measured into quantities. We can give quantitative numbers to our satisfaction level such as ratings.

An example for Cardinal utility, we can use rating system used for the online shopping sites like Amazon, Flipkart etc. After delivering the product, they ask for ratings out of 5. Then we give them ratings for the satisfaction level we get from their service.

• Ordinal utility: Ordinal utility cannot be measured into quantities. It is more based on quality. We use rankings for our satisfaction level.

An example for ordinal utility is, when we talk about list of our favourite foods. Each of the food give us a satisfaction level. But we all have one food we give the highest level of satisfaction. Then we put then at the 1st rank and other below them according to their level of satisfaction. This is the ordinal utility measurement.

4) DIMINISHING RETURNS TO A FACTOR:

Diminishing returns to a factor refers to a situation where the total output first increases at the diminishing or decreasing rate as more of the variable factors are added with the fixed factors of production.

• Example for the diminishing to a factor: we are working in a group of 3 for a project. It usually takes 4 days to complete it. Here the fixed factors are the study material and variable factors are group members and time taken. When we add 2 more members in the group, then the speed of completing the project is increasing but the efficiency each member is having is decreasing as the task is divided into more members.

• Another example for diminishing returns to a factor is, juice company uses pesticides for increasing the life of that juice. As they increase the amount of pesticides in the juice, the life of the juice increases but the nutrients gets reduced.

5) DIMINISHING MARGINAL UTLITY: In diminishing marginal utility, as we consume each successive unit a product, the utility derived from the consumption of the product goes of diminishing.

• Example for diminishing marginal utility, we like to eat golgappa . When we start eating golgappas daily. Then a time comes when the satisfaction or pleasure that we were getting form eating golgappa reduces. And a point may comes when we do not even want to eat golgappas.

• Another example,  we all have a favourite colour choice for clothing. We sometimes like to buy clothes of that colour only. Then we keep on wearing the same colour cloth. Then a time comes, when we loose interest in that colour. Then comes a time that we don't even want to buy any clothes of that colour.