1.
Principle of Diminishing Marginal Utility
The more of a good
that one obtains in a specific period of time the less the additional utility
derived from an additional unit of the good.
Example: A movie
can’t be run for a long time like six month or more. After each time watching
the movie, the marginal utility start decreasing. And one day it will be
negative. Then no one will watch the movie. This is the reason underlying
behind the fact.
2.
Opportunity Cost
Opportunity cost
is the cost of something what you gave up to get an another alternative thing.
Example: People
are leaving villages and settling down in town or city. They are doing this for
extra benefit which they will get from town or city and for getting the extra benefit
they are giving up the opportunity which they can get from village.
3.
Law of Demand
When the demand
increases, price of any product also increase and when demand decreases, the
price also decreases.
Example: In hot
summer days, Price of ACs increase sharply. Because at that time, demand stays
in pick.
4.
People Respond to Incentive
Example: People
always go to that shop from where they get maximum discount. The discount is
incentive to the customer. Some shop also offers easy EMI scheme. That is also
an incentive to the customer,
5.
Marginal Rate of Substitution
MRS is a measure of
number of units of Y that must be given up per unit of X added so as to maintain
a constant level of utility.
Example: Some
people travel from their work place to home every day to save money. They sacrifice
their family life to save money. Some people stay at city, nearer to their work
place, to save time. They’re able to give a quality time to their family, but
they sacrifice their savings because the ‘cost of living’ in city is high.
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