Microeconomics In Practical Life

Microeconomics In Practical Life

Microeconomics:-

Microeconomics is a branch of economics that study the behaviour of individuals in making decision regarding the allocation of scare resources and the interactions among these individuals.

1.   People face trade-offs

To get something (goods or services) you want, you have to sacrifice something you want.

“Human wants are unlimited, resources is scare and have alternative use.”

 

For Example:-

(a)           When we get salary then we bought things for our house and for our self. We want to buy a lot of things but we bought those things (goods and services) which we require more just like we first bought grocery and food items.

(b)           On one fine day I have 250 rs and I am feeling so Hungary and I want something to eat but I also want to buy a deodorant but at that time food is more important so I sacrifice the deodorant.

2.       Law of Demand:-

When the price of a good increase, the quantity demanded for other goods decreases and if price of good decreases, then quantity demanded for those good increases.”Negative relationship between price and demand.”

For Example:-

(a)           Given table is data of chocolate store

Price of chocolate	Quantity purchased
2 rs	10
3 rs	9
4 rs	7

                                       

(a)           One day I went to buy a face wash but what I see the price of my favourite face wash is increased by some amount, and now I think twice and i go for other brand only because of increase in price.

1.   Opportunity Cost

Opportunity cost simply means the next best alternative.

                          Or

The Opportunity cost of an item is what we give up for an item.

Examples:-

(a)           One day I went to the mall and find a nice pair of shoes for about 10000 rs. but I didn’t buy that and go  to another shoes store and I find one more better shoes but @ 6000 rs.

(b)           Few years ago my Father was planning to take a housing loan so they done a research and found out different interest rates of different banks. Finally they finalise two best banks who give loan at interest rate of 10.8% and 9.8%. Then my father chooses the option of 9.8%.

  

4. Law of diminishing marginal utility

The Law of diminishing marginal utility state that as consumption increased the marginal utility derived from each additional unit declined.

Examples:-

(a)           Whenever I buy a new thing (shoes, t-shirts, jeans e.t.c) when I use that thing for the first time then I feel very happy and satisfied. But as soon as the thing becomes older every next time I use that thing I lost some interest and at the end I stop using that thing.

(b)           When a new movie release then every have a craze for that movie and when see that movie for the first time if we like that movie then we want to watch that movie again and again. But when we saw that movie again we don’t like that movie as we like for the first time and after some time we don’t want to watch that movie again.

    5. Price elasticity of demand

Price elasticity of demand is a measure of how much a quantity demanded of a good respond to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.

Examples:-

(a)           Perfectly elastic demand : Elasticity=0

Sometimes it happens when the price of goods and services may increase or decrease but it doesn’t affect the quantity demanded, if we see the practical  example than medicines is the best example for this because price of medicine may change but we cannot increase or decrease the consumption or quantity demanded.

(a)           Elastic demand: Elasticity > 1

Sometimes it happens when slight change in price leads to a big change in demand. The practical example for this is petrol price when there is very small change in prices then there is big change in quantity demanded.