My Experiences with Economics

Ø PEOPLE FACE TRADE OFF

When people have too many choices, they tend to get confused while making a decision on what to choose and what to eliminate. This phenomenon in perspective of economics is called as "Cost Benefit Analysis".

The cost of something is what you give up to get it. This may also be called as "Opportunity Cost". This means what an individual is willing to give to get something better or extra

In simple words when people have to choose between two similar choices they always choose the one, which gives them something extra or provide some extra benefit.

For Ex:

1.     I wanted to buy a laptop, my choice narrowed down to HP and Lenovo. I chose HP because it gave me extended warranty of 3+2years and also a wireless mouse free.

2.     I went to get a haircut, so I went to a salon. There were various packages ₹80 for a haircut, ₹30 for shave and second package was of ₹100 for both haircut and shave. I chose second because I was saving ₹10 and also getting both services for ₹100.

Ø Elasticity

An elasticity is a measure of the sensitivity of one variable to another.

% change that will occur in one variable in response to a % change in another variable.

For Ex:

1. When the price of onion increased, consumption of onion reduced.

2. Price of a chocolate decreased, the sales went up by 7% .

Ø DETERMINANTS OF ELASTICITY OF DEMANDS.

1.Consumer Income:

The income of a consumer may also affect the elasticity of demand. For a consumer with high income, the elasticity of demand would not affect to that extent as it effects the consumers with lower incomes.

For Ex: If the prices of oil/petroleum products go up, it would affect largely to the consumers with lower income but would not effect that much to rich class.

2.Amount of Money Spent:

The price of a particular product may also effect the elasticity of demand. For a product with less value, the elasticity of demand would not affect whereas with a huge value product it may affect massively.

For Ex: If price of a pen increases from Rs.8 to Rs.10 its demand may still be same, similarly if the price of a car increases from Rs.7lakhs to Rs 9lakhs its demand might go down.

3.Price of Substitutes.

The elasticity of demands also depends on the substitutes available in the market

For Ex: If the price of milk from a dairy is comparatively high to others, the consumer may turn to other dairy as a substitute stating that the prices are too high. Hence the demand of the first dairy may reduce.

Ø Understanding Consumer Buying Behavior

Consumer behavior is the study of individuals and organizations, and how they select and use products and services.

The consumer buying behavior includes:

• How consumer think of brands and other alternatives.
• How consumer select an alternative out of the many various available.
• How consumer behave while buying and researching.
• Tastes and preferences of the consumer.
• Income levels of the consumer.
• Availability of the product/services.

For Ex:

1. When buying a mobile phone, I bought an iPhone because it’s always refers to a brand and luxury.

2. I don’t drink tea, so I always prefer coffee over tea. This refers to taste and preferences of mine.

Ø Marginal Utility

Marginal utility is the additional satisfaction a consumer derives from consuming one more unit of goods and services. Diminishing Marginal utility is when consumption of one more item decreases the total utility.

For Ex:

1. I went to have dinner in a hotel, I ordered paneer chilly and after I ate I got 100 units of utility, next time when I went and ordered paneer chilly again I got 80 units of utility. Each time I ate paneer chilly my utility kept on decreasing.

2.  I purchased a pair of shoes, first time I wore I got 10 units of utility. Next time I wore I got 9 units of utility. I got 8 units and 7 units of utility respectively each time I wore.

“This shows that our level of utility from successive use/consumption reduces the level of diminishing marginal utility.”