My Life In terms of Microeconomics

Indifference Curve

Indifference curve can be plotted for two goods or services which can substitute or complement each other while maintain the same utility level.

Example 1:

Last weekend I had went to a Restaurant nearby, and I placed an order quickly for Tandoori Chicken, Rumali Roti and Salad. I was waiting eagerly for order. It was past 45 minutes of my order and it was getting late because I had only half an hour left, so I had to ask for a dish which could be prepared faster. Finally, I ordered Chicken Biryani served with Raita. It was served hot within 5 minutes.

In this case both the combination of dishes had the same utility for me. So I substituted the 2nd combination of dishes with the 1^st combination of dishes.

Example 2:

Few months back there was a price hike for petrol. Initially it was around Rs. 65,but after few days the price rise was around Rs 1.50 every 2^nd day. After 2 weeks or so the price was around Rs. 79.

In this case both the components i.e. the petrol and the car complemented each other as a utility. Even though there was a price hike I had to fill up the tank with petrol.

Trade-off

Trade-off is the choice you make to gain something and sacrifice another so as to gain utility or to make a wise decision.

Example 3:

During our school days when the exams were near, we always had to make a trade-off between the extra study hours and our favourite cartoon serials. And I had to    study few hours extra so as to score good. Here I had made a trade-off to not watch my favourite cartoon serials which won’t repeat again for next few months, and I’ll be left alone in the group when it comes to the discussion with the friends.

Example4:

When I was at my early teenage, we used to go to the ice-cream shop almost every 2^nd day during the summers. I like ice-cream a lot, but watching my younger sister finish first and then gazing at my ice-cream with those puppy dog eyes. I couldn’t help myself but to give the rest to her as I love her.

Here my opportunity cost was not able to satisfy my ice cream but my trade-off was my little sister’s happiness the rest of the day.

Cost-Benefit Analysis

This term refers to the situation when we need to think what I need and why I need. What utility it will serve me compared to the other. What if the other is better than this? And finally we come to an conclusion by analysing the utility it will serve with the constraint budget we have.

Example 5:

When I went to the mall to buy a new pair of sneakers. I was very much excited, but sooner I went into the state of turmoil. Because of the range of shoes, the mall had. There were hundreds of shoes with different styles, different Brands. But unfortunately I could only take one. Now the only thing I could do is analyse the utility of the shoe vs the cost I am willing to pay.

Example 6:

Even in the case when I bought a new Smartphone. There was a paradox of choice. Every Quarter a new Smartphone with new features. But finally I listed out what were my requirements in a smart phone. I needed a nice camera,4g Volte support, sim slot with Dedicated slot for micro SD card, etc.

So, keeping these factors in consideration I Finally Chose to buy MI Y2 which was the perfect fit to my requirements.

Budget Constraints:

Maximizing the Utility which one can incur from the components one have within a given constraints.

Example 7:

When I went to Delhi for a 6 months coaching, I was in a need of a room. The room had to be neat and clean, well ventilated, with attached toilet and bathroom facility and at the same time it need to be near the coaching centre. Lado Sarai, was the nearest place and yet had some decent place for students to stay with good food and cleanliness. Even the market was nearby.

So I was lucky enough to get a good place to stay with a good cook who serve delicious and healthy food. With a monthly expense of Rs. 5500, whereas the minimum expenses would be par Rs. 10,000.

Like there were so many constraints, the boarding budget should not cross Rs 7000, food expenses, other miscallenous, because I used get only Rs11000 every month.

In this case I came across how difficult it is to get a nice place to stay and even get it nearby to the place of your work or regularly have to visit. This situation taught me how to Maximize my Utility.

Example 7 also explains about the how I came across the Marginal Utility I came across.