You cannot get all that you want

This incident happened to me last week when I had gone to Dmart(A one-stop supermarket). After I had chosen all the items I wanted to buy, I had presented them to the counter for billing. The person at the counter had totaled the amount to be Rs 1740, but I only had  Rs 1500 with me as part of my budget. At the moment I had to leave a few items at the counter and so I could not get all that I had selected. I even had to reduce the quantity of a few items. This is a classic example of what is known as people face trade-offs. 

The supply of money is in no way unlimited to any person, therefore when they make a purchasing decision, the amount of money spent on one commodity affects the share of money spent on another. In such a way people in their day to day life come across innumerable such incidents that are known as Trade-offs.

The Supply Elasticity

Elasticity of Supply

Definition of Elasticity:

Ever think of finding out the comparison level of two variable? Well, Elasticity is the best option. Elasticity refers to the measure of the sensitivity of one variable if the other changes. For example, Advertising elasticity is the relationship between the ad budget and the changes in sales volume.

Economists are often  interested in elasticity of demand and elasticity of supply.

The scenario of elasticity can be of three types mainly
1. When elasticity is greater than 1 i.e elastic situation
2. When elasticity is less than one i.e inelastic situation
3. When elasticity is equal to one i.e unitary elastic situation

Elasticity has various determinants which are as below

Elasticity is one of the prime factor to consider in managerial as well as business decision making.
It helps in deciding proper price, channeling the supply and handling the demand to make business successful.

Elasticity of Supply

The elasticity of supply is a measure of a company’s ability to increase or decrease production in response to a price change. It is also referred to as the price elasticity of supply.

Why it matters

Elasticity of supply tells us how fast supply responds to quantity demand and price increase. When there is a popular product that is in short supply for instance, the price may rise as a result. The manufacturers of that product will increase output (the supply) to keep up with the demand. The higher the elasticity of supply, the faster the supply will increase when demand and price increase. Some goods/services are more supply inelastic however, whenever there is a supply shortage. Limited tickets to a concert may have a very inelastic supply. The price of the concert tickets can be raised to any amount, but because there is a fixed number of seats and tickets, the supply (of tickets sold) may not be increased by much if at all.

Supply Determinants

• Flexibility of inputs

When you go to hotel, the most important person is chef. If chef is absent nothing will go, chef cant be replaced.

• Mobility of inputs

Theater group, they will be performing in different countries, different events. But the machineries are not easy to relocate.

• Durability

• Time

Drivers are elastic inputs but if you have a urgent meeting and that driver become unavailable for that time period that moment he cant be replaced.

• Ability to produce substitutes inputs

If anything can be substituted then inelastic goods is turned into elastic.

People Face Tread-offs

People Face Trade-offs

The alternative you face when you decide to do one thing rather than another. To get something you want, you have to give up something else you want. Scarce resources.

Trade-off is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect.

Think of allocating your time and money.

• People make trade-offs all the time

A Family faces a trade-offs whether to buy a car or spend the money on savings for meeting the future needs such as for higher education for there children .

• Businesses also make trade-offs

Businessman invests in research for new products or spend money on advertising to increase sales of old products.

• Government also face trade-offs

spend money to build new schools or build new roads.

Micro Economics : 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 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

Rational people always think of the margin. 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 Example: A person wants to buy a car, but is confused between 2 cars of similar price range, he would then, prefer the car which has some extra accessories or better amenities.

People like getting a better offer or better services.

"People Respond To Incentives".