PILLARS OF ECONOMICS

DEMAND:

Demand is consumer’s desire and will to purchase goods at various prices.

But every demand cannot be termed as demand until we have ability to fulfil that demand or purchase that product. Ability to purchase comes from price. Whatever we demand or desire depends upon the price of commodity. So, if we are able to buy that particular commodity on the given price then it is called demand.

Example: we the people of IBA want to purchase litchi drink because of its taste or weather etc. so here the purchase of litchi is known as demand.

Utility:

The satisfaction people derive from their consumption activity.

In other word utility is how useful a commodity is for us. It is the power of the commodity to satisfy humans.

Example: when I consume a chocolate, it makes me happy, so it has power to satisfy my need. this is utility.

Opportunity cost:

The sacrifice we do to achieve something is opportunity cost.

Or, opportunity cost is the cost of the next best alternative.

a choice needs to be made between several mutually exclusive alternatives assuming the best choice is made.

Example: imagine you have 200 rupees with yourself. U need to purchase either calculator or biryani. You purchased calculator. So you chose calculator by giving up the cost of biryani which is the next best alternative. This is opportunity cost for biryani.

Incentives:

Incentives means inducing. It is also known as act of giving benefits for some act of others.

It is an act of awarding someone to act in a particular way. Incentives attract both buyers and sellers. Price and quality are the top most incentives which attract both buyers and sellers.

Example: in our college, there is one workshop on Monday regarding strategic management. So students who will volunteer it will be getting certificates as reward for their job. So here the certificate is nothing but incentive.

Economic terms with relevant examples!

Supply:Willingness and ability of the producer to offer the goods in the market for sale at various prices.

Example-On the occassion of Rakshabandhan each and every chocolate shop will supply more quantity of sweets than they supply in normal days because they know that the demand for sweets is high on that day.Its the suppliers willingness to supply at what quantity to the customers.

Opportunity Cost:The opportunity cost is the cost we give up to get something else.

Example: If I have 2 choices,one to choose between ice-cream and chocolate ,and if I choose icecream,then here is opportunity cost is the chocolate which I didnt chose.Here I gave up the opportunity of chocolate in order to choose icecream

 Demand:Demand is the consumers desire ,ability and will to purchase goods at various prices.

Example:If a person buys 2 clothes in normal days then while during the sale or discount he will buy the double clothes he bought in normal days because of decrease in price .

Utility:The satisfaction people drive from their consumption activities. OR

The want satisfying power of a commodity .

Example:If I want to eat mutton biriyani, then I went outside and ordered mutton biriyani in a restaurant and I ate it.The maximum 

satisfaction I get by consuming mutton biriyani is known as utility.

Incentive:

Example- My group was assigned a assignment,there were total 5 members in my group from 5members 4 did their work and the last one said me that he will give me silk chocolate if I will do his part of the assignment.I immediately said yes and did his work.This is 

Linking of economics to our day to day activities

Economics can be observed behind every aspect we do on day to day basis. Let’s see some cases that can be analysed.

People respond to incentives:

Incentives can be defined as any thing that influences the productivity or decision making of an individual. Let’s see where we can find it people prefer to  spend their money on pizzas in pizza hut on Wednesday because they respond to the incentive which is one plus one offer on that particular day. Like these there are many incentives that take a key role in decision making process.

Income effect:

If the income of a person increases the demand for a product increases if it is a normal good if it’s a inferior good the demand decreases. Let’s see if I want to go to some place within the city I prefer to use bus but if my income increases I use auto or cabs. Here as my income increases my demand for buses decreases.

Law of demand:

It states that if the price of a good decreases the demand for that good increases and if the price rises the quantity demanded decreases. Now let’s see I buy more biscuits in dmart because as the price of biscuits decreased by around 8 rupees than the normal.

Law of diminishing marginal utility:

It states that the marginal utility derived from each additional unit consumed decreases for each additional unit over a specific period of time. Now see how restaurants make profit from this generally they provide unlimited buffet for a particular price because they know that after a point of time the consumer can’t eat any more because he is already full if he eats more he needs to go to hospital.

Rational people think at margin:

Opportunity cost of a good can be defined as what you give up to get that product. As rational people always think at margin they do this cost benefit analysis which includes opportunity cost to decide which product to choose. While going out for dinner during Saturday night we go to that restaurant that gives additional discount over the bill although there are other providers with the same taste and same quality and same price.

Concepts Of Economics

Law Of Diminishing Marginal Utility-

The law states that, 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.

For eg -
• If we watch a movie for the first time,the utility derived from it is the maximum. If we watch the same movie again and again ,the utility would keep decreasing each time.

• if you are hungry and then you order a pizza the first slice that you eat gives you maximum satisfaction and it will yield maximum utility to you .On the other hand if you keep having Pizza slices one after the other the additional utility keeps on decreasing.

Opportunity Cost-

The next best option or alternative available to us is known as the opportunity cost.

For eg-

• if a student decides to attend his extra class instead of going for a concert the missed concert is his opportunity cost.

• if a farmer decides to plant wheat ,the opportunity cost would be any other crop he could have planted like rice or pulses.

Law of demand -

The law of demand states that with the increase in the price of a good, the quantity demanded of that good decreases and vice versa ,other things remaining constant .

for example -

•if the price of onion increases, the quantity demanded for onion goes down or decreases considerably.

•If the price of Apple decreases, the people who usually don't buy apples will also start buying it because of its reduced price does leading to an increase in quantity demanded of Apple.

Law of supply -

the law of supply states that keeping other factors constant, if there is an increase in price of a good the quantity supplied also increases.

For eg -

•If the price of Titan watch increases the suppliers will be willing to sell more watches in order to maximize profit margins.

•If the price of oranges decreases in the market the suppliers will be unwilling to supply oranges into the market.

Marginal Utility-

The additional satisfaction that a consumer derives after the consumption of an extra unit of good or service is called utility.

For eg-

•The utility derived after the consumption of first pastry is more than the utility derived after consuming 5 pastries.

•The utility derived after reading a novel for the first time is more than the utility derived after reading it for the second time.

Without our much notice we deal with many situations which can be defined by economical terms.So lets discuss!!

1)  Theatre artists/performers performing in multiple events/cities

Concept- Determinants of elasticity

Mobility is one of the determinants in elasticity. For example a hospital gains its popularity for its renowned doctors. So doctors are inelastic in this case. Because if doctors are replaced then that hospital will loose is reputation.

But theatre artists or performers are elastic inputs. Because with the replacement of one artist demand will not change. They will be performing in different cities and different events.

2)  We see more and more domestic tourists visiting beaches rather than religious places as seen earlier

Concept-Equi-Marginal Principle

This principle helps us to understand that people spend their money on that good where marginal utility will be very high.

Number of religious places are huge  with respect to that of the number of beaches.

So visiting a beach generates high marginal utility with respect to that of visiting a religious place. In this busy world people gets less holidays and in that time they will get high utility by visiting a beach because they can visit religious places any time they want.

3)  Many star hotels routinely offer unlimited buffet meals

Concept- Revenue, Pricing, Elasticity

In India most families are average middle class families. For middle class families price is highly elastic. With the increase in price they decrease their demand. So most star hotels offer unlimited buffet. In a buffet people are getting ample amount of food by spending average amount. This increases the demand. As the demand increases they increases they increases the volume, reduce the prices.

The volume will make up for the per unit contribution.

4)  Often, unseasonal price fluctuation is observed in case of fruits

Concept-Price mechanism

With season price of a particular fruit increases because the demand for that fruit increases and on the other hand in the off-season the demand for that fruit decreases and so the price also decreases.

Take example of mango. During the summer demand of mango increases so the supplier knows whatever the price they offer people will buy, so price increases. But when summer goes then the demand decreases. So the supplier decreases the price and whatever he sells he enjoys the cash flow.

5)  We often see keen interest especially among young men and women to participate in fashion shows

Concept-Law of diminishing marginal utility

The current generation i.e. the youth generation have the tendency to get bored of things easily. When it comes to fashion the trend changes every month. The marginal utility from a particular fashion decreases over time. How many times will you wear the same fashion shirts? 1 week, 2 week 3 weeks? I am sure not more than that. The marginal utility decreases easily in the youth generation. So in order to keep in touch of the trending fashion the young mem and women are keen to take part in fashion shows.

5 Concept Revisited

Opportunity Cost

The benefits we give up in order to get something else is called opportunity cost. If you want something of you want you have to sacrifice something.

B-C=Net Benefits.

Example: A girl went to shop to buy ice cream. The ice-cream man offers her 2 flavour vanilla and chocolate after thinking she choose vanilla flavour. So chocolate flavour ice cream is her opportunity cost.

People Response to Incentive

Incentive is an Add-on benefits that induced a person to act, by giving some rewards who change their behaviour.

Incentives = Price: Quantity (P:Q)

Example: Raj hotel offer free tea whenever you order food.

Diminishing Marginal Utility

The more of the good that one contains in a specific period of time, the less the additional utility derives from an additional unit of good.

Utility diminishes over time the shorter the time period the quickly the marginal utility diminishes.

Example: Rahul take a challenge of eating 20 gulab jamun he starts eating very fast then other and finishes 10 gulab jamun in 1min after 10 gulab jamun he started losing his interest and eaten only 13.

Trade-off

When people think what to buy what not to buy and end up buying nothing or noy satisfied with his buying is called tradeoff.

Example: A boy has 500rs he go to the market to buy clothes but he buy books because he have to study for exam.

Supply

Willingness and ability of the producer to offer the goods in the market for sales at various prices is called supply.

                                                                                                              source Google

Mid-term's Economical situations

1. Often unseasonal price fluctuations are observed in the case of fruits.

Concept : Price Mechanism

It refers to the system where forces of demand and supply determines the prices of commodities. Here the unseasonal fluctuation of fruit is due to unavailability or surplus availability of fruit in seasonal or unseasonal time.

2. The No. of tourists visiting hill station is comparatively high that that of religious places.

Concept : Marginal Utility

This situation refers to marginal utility because the satisfaction when a consumer gets while visiting a hill station is much higher than compared to going to a religious place. The facilities provided at hill stations are much more than religious places like comfortable accommodation, hygiene, good food so once a consumer experiences these facilities in a hill station he then prefers going to a hill station rather than to a religious place.

3. The artist or performers performing at different cities or events

Concept : Law of Demand

This situation is related to Law of Demand as the artists are performing at different cities because of the increase in demand for their performance.
One of the law of demand is satisfaction of customers, by performing in different cities they are satisfying the demand of their fans.

4. As the usage of skilled labour along with technology increases the output in expected to be high.

Concept: Increased return to scale

This situation is being referred to this concept because when the input i.e. skilled labour with technology is being increased the output will also increase according to increased return to scale.

5. 3 Prospective locations for large retail outlet location A offers 750net benefit units, location B offers 900 net benefit units & location C offers 850 net benefit units.

Concept : opportunity cost

It refers to choosing the best alternative possible.
Here we will choose the location B because it is giving the maximum net benefit unit that is 900.

Economics Integrated With Our Life

Economics Integrated With Our Life:

Whether directly or indirectly economics is been integrated with our life constantly.some of the live examples which are been related to our life with the following concepts

1.Price Mechanism:

Often,unseasonable price fluctuations are observed in case of fruits.

Explanation: When price fluctuates automatic the supply & demand changes for fruits when price increases it impacts both supply & demand. In supply it is a direct relationship and in demand it may changes

2. Opportunity Cost:

Three prospective locations for a large retail outlet-Location 'A' offers 750 net benefits] units, location 'B' offers 900 net benefits units & location 'C' offers 850 net benefit units

Explanation: Here we are selecting one location and sacrificing the another location. The net benefit received for location for sacrificing the another location is called opportunity cost

3.Law Of Demand:

 What happen when price of oranges increases/decreases 

Explanation: Let us take an example if a consumer have Rs 50 he/she buys 10 oranges and if the orange rate decreases by Rs 40. He can buy 13 orange we can observe that when price increases the quantity demand decreases and vice versa.

4:Law of Diminishing Marginal Utility:

 Many star hotels routinely offer buffer meals.

Explanation: Because as we consume more meals the satisfaction derives from meals decreases so consumer consume less & star hotel can save.

5.Income of a Person:

  we see more & more domestic tourists visiting beaches rather than religious places as seen earlier.

Explanation: As income of a person rises the demand for service or product also rises i.e, beaches. It is directly related the income of  a person

5 concept of economics

               Set -2

1) To analysts,indian industry will be able to take advantage through offering products at low prices

Ans) concept is Law of demand - 

As the price of the good increases , quantity decreases conversely,as the price of a good decreases quantity increases.
Therefore,law of demand has an inverse relationship between the price of good and the quantity demanded,other things remaining constant.

2) Often, unseasonal price fluctuations are observed in case of fruits .

Ans) Concept is Price mechanism-

It is an economic concept which means that the price of the product will be dependent upon the demand and supply for that product.
If there is an increase in demand,then prices will increase as a result of which there will be a movement in supply curve.

3) Supply curves for live sports events.

Ans) Supply curve is a graphical representation which shows the relationship between price of the product and the quantity supplied which the producers is willing and able to supply at a given price while other things remaining constant.

4)Three prospective locations for a large retail outlet- location A offers 750 net benefit units, location B offers 900 net benefit units and location C offers 850 net benefit units.

Ans) Concept is Opportunity cost-

Opportunity cost refers to the value of what we give up in order to choose something else. It  is also known as Alternative cost.

5) We often see keen interest especially among young men and women to participate in fashion shows.

Ans) Concept is Utility .

Utility is want satisfying power of a commodity to give satisfaction. It diminishes over time - the shorter the time period -the more quickly  marginal utility diminishes .

Few Concepts of Economics with examples

LAW OF DEMAND

The Law of demand states that price and quantity demanded of a product are inversely related,

i.e., When the price decreases demand increases and when price increases demand decreases, (other factor remains constant).and vise versa 

Example:

Momo shop in front of IBA college gate used to sell momo at Rs40 for 1 plate as the demand increased he increased the price as Rs60 per plate.

PEOPLE RESPONED TO INCENTIVES

Incentive is something that that induces a person to act. People responds to incentives because they get benefited more from it.

Example:

While purchasing products from DI MART when we find more offers in some products then we tends purchase more products.

 

OPPORTUNITY COST 

Opportunity cost is the highest valued alternative forgone whenever a choice is made.

Example:

Before joining new college for PGDM course I compared between IBA and IFIM college. After getting all reviews from other sites and students I choose IBA instead of IFIM. So I choose IBA over IFIM. Therefore IFIM is my opportunity cost.

UTILITY

Utility is the level of satisfaction that we get after consumption of goods and services.

Example:

After consuming biriyani from a good restaurant the level of satisfaction that we get after consuming biriyani is the utility.

DIMINISHING MARGINAL UTILITY

Diminishing marginal utility states that the more of a product or services a consumer consumes the marginal utility will fall gradually.

Example:

We love to eat ice cream. Last day I ate a scoop ice cream it was tasty and derives a great utility but after eating the second and the third scoop of ice cream the tastes falls and the marginal utility falls rapidly.

ECONOMICS

Hello everyone, I hope you are doing well. Well I am again back with some concepts of Economics. This time I will be giving some general examples, and we will find economics concepts in those examples. Economics is all around us, what we have to do is identify them. So let get started.

1^st- Suppose, you mother purchase vegetables daily, say you take potato daily (1kg @40). Now if price of potato got down, what you mother normally do. (take a movement and think). Of course she will purchase more in given price.

So are you able to find any economic concepts in above examples.

Let me tell you, that example is based on LAW OF DEMAND.

LAW OF DEMAND says, when price of a product decrease, quantity demand of that particular product decrease and visa-versa.

2^nd- Me and my friend went for dinner last Saturday, we ordered chicken and noodles.

But my friend ate chicken more than noodles.

So which economics concept above example make you remind.

Its INDEFFERENCE CURVE

In order to consume one product more, we need to reduce consumption of other product. (here both product give same level of satisfaction)

3^rd-  samosha is my every time favourite, one day i went to eat samosha at a shop, I ate first samosha, it was yummy I got higher level of satisfaction. But as I kept eating my level of satisfaction start decreasing and a point came where I stopped eating.

This example is about LAW OF DIMINISHING MARGINAL UTILITY

When a consumer keep consuming a particular product, satisfaction derived from each additional unit get reduce.

4^th-  I still remember that day when I was in D-Mart, I was shopping for my house. i showed fair handsome packet and deo was free with that packet. I immediately bought that packet.

This examples is about PEOPLE RESPONDE TO INCENTIVES

When a consumer get extra thing with limited money they response quickly.

5^th-  Last sunday i missed to go for dinner at santripti at time, so decided to go grocery to eat somethings. i had 50 rupees with me that time and i decided to spend total money.
so instead of purchasing same things i went for different items, which had same marginal utility for me. hence i spend my total money and i got higher satisfaction.

LAW OF EQUE-MARGINAL UTILITY

According to Alfred Marshal,"if a person has thing which he can put in two uses,then he will divide between both in such way that it has same marginal utility in all.

In simple words we cam can say, when get a chance to purchases two or more things we usually purchases in such way that we get same  satisfaction in all.

BUSINESS ECONOMICS CONCEPTS.

BUSINESS ECONOMICS CONCEPTS.

1).LAW OF DEMAND

As price of a commodity increases the demand for it decreases and vice versa.

Once i went to a vegetable market where the seller was selling cauliflower at high prices people stopped purchasing it and when the seller lowered the price the demand for it increased gradually.

2).LAW  OF SUPPLY

As the prices increases the supply for the commodity increases and vice versa.

During diwali i saw as the prices of crackers and diya increased the supply of these commodity increased in the market and vice versa. As these products are the need of the hour.

3).PEOPLE RESPOND TO INCENTIVES

A rational consumer always respond to incentives as he want to get more benefits.

As once the restraunt owner offered me and my friends some extra incentives for the next visit. Seeing the discount percentage me and my friend decided to go for the next time.

4).TASTES AND PREFERENCES

Tastes and preferences causes shift in demand curve.

Earlier i had great liking for American nuts ice-cream but after sometimes the taste for this flavour decreased so this will cause shift in demand curve and that too leftward shift.

5).ORDINAL UTILITY

Ordinal utility is the measure of utility which is not defined in numbers. This generally a ranking process.

During my school days there were science exibition held where the ranking of each group was done according to their performances.

Concepts of economics with practical experience

           INCREASING RETURN TO SCALE

Increasing return to scale to means proportional increase in output is greater than proportional increase in input.

Example: Hindi was introduced as 3^rd language in standard 6. But the                            marks obtained in hindi was more than the effort put in studying                    hindi.

                  OPPORTUNITY COST

Opportunity Cost can be termed as alternative cost that has to be forgone for the decision taken of current use.

Example: As one of my father’s fixed deposit matured I invested the sum in                   purchasing a new computer but my father had the option of                            reinvesting the same in fixed deposit.

            DIMINISING MARGINAL UTILITY

Utility can defined as level of satisfaction that is achieved by consumption of goods and service. Diminishing marginal utility can be defined as decrease in additional utility that can be achieved consumption of additional unit of goods and service.

Example : As I was playing more of a game Max payne additional utility                       that I achieved by playing the reduced over time.

             PRODUCTION POSSIBILITY CURVE

Production possibility curve can be termed as amount of goods and service can be produced by switching resources between this goods and services.

Example: I had the option of investing time between my family business                       and higher studies after graduation.

           CROSS PRICE ELASTICITY

Cross price elasticity of demand can be termed as change in demand of a good due to change in price of another good.

Example: Need for good result in accountancy due to bad preparation in                         data analytics. 

Economics In Daily Life

Law Of Demand: Other things remaining constant, when the price of a commodity increases the demand of that product decreases.

Examples: There is a milk manufacturing companies naming Amul. Suppose customer A consumes a product of Amul. When the price increases, the consumers decreases using it and may transfer to another product.

People Respond To Incentives: It can be in point of the buyers and sellers. In both cases price and quantity is the main thing.

Examples: When I went to D-Mart, for buying biscuits and snacks. I always go for products which offers low price and the quantity is more, i.e my incentive as a buyer.

Utility: When people derive satisfaction when consumption of any product or service.

Examples: When I bought a MI phone, I was satisfied using it and its features overwhelmed me. The satisfaction I derived using the phone is my utility.

Marginal Utility: Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.

Examples: I went to a restaurant for having a pizza and after having the first slice the satisfaction I derive is the marginal utility.

Rational People think at a margin:  People want to derive most for the amount they are spending.

Examples: I went to a shop for buying an apple juice, and Tropicana was offering juice and a biscuit of RS.5, and the total price was RS.99 and Real was offering only juice for Rs.99. I bought Tropicana because it was offering something extra than Real, so as it was offering more I bought it.

Concepts of Economics

1. Utility
Utility is the satisfaction that people derived from their consumption activities. It is measured in terms of utils. ItIt is assumed that taste and preferences of people are fixed and given and play a large role in decision making and second it is assumed that people allocate their income to maximize their satisfaction or total utility.

Basically there are two types of utility:
Cardinal utility and ordinal utility

Cardinal utility is the utility where in the satisfaction derived by the consumer from the consumption of goods or services can be measured numerically. It is measured in quantitative terms.

The second one is ordinal utility. It is the utility where a utility derived from the consumption of goods or services cannot be expressed in numeric terms, instead ranking is given. It is qualitative in nature.



2. Taste and preferences:
Taste is what kind of products customers like and want to buy. Customer preferences is defined as what customer prefer and get maximum satisfaction at. Customer satisfaction can be measured by their satisfaction with a specific item compared to opportunity cost of that item. Since whenever you buy one item you forfeit the opportunity to buy a competing item.



3. Increasing returns to scale:
If all the inputs in the production process was doubled and if the output increases more than proportionately with an increase in the inputs then that will be termed as increasing returns to scale.
If the input is increased by 2 times but the output increases by 2.8 times then the form has increased return to scale.



4. People respond to incentives:
Incentives are something that induces are people to act. Rational people makes decisions by comparing the cost and benefit because they respond to incentives.
If price of iPhone decreases people will start buying that phone. Here low price is an incentive and people are responding to that incentive.



5. Law of supply:
So first let us know what is supply.
It is the willingness and ability of the producers to offer the goods in market for sale at various prices.
So law of supply is ,as the prices of a good Rises the quantity supply also rises. There is a direct relationship between the quantity supplied and the price of the good.
So as the price of a good rises, the firm's  supply rises because the producers want to earn more profit by supplying more goods.

Economics concepts with 5 Real Life Examples

Law of Demand

Example- When the prices of sugar is increasing the consumption of sugar decreasing.

Law of Supply

Example- When the price of wheat increasing the demand is also increasing.

Marginal Utility

Example- When we go to dominoes we take two chicken pizzas and take one extra burger. The extra burger is the marginal utility.

Utility

Example- When we go to restaurant we take one Bengali meal thali the satisfaction we get is the utility.

Opportunity cost

Example- When we go to restaurant we choose between plain rice or fried rice we choose fried rice and plain rice is the opportunity cost.

Basic concepts of Economics with examples

1) Laws of demand:-
It says that price is indirectly proportional to the demand.
If price decreases then demand increases.
Example:-
If the price of milk decreases then demand also increases, as there is no substitute of this particular product.

2)People respond to incentives:-
It says that if incentives are being offered to a customer the automatically he/she gets attracted towards it
Example:-
If there is any offer or discount given in a particular dress then all the customers are attracted towards it.

3)Opportunity Cost:-
The concept says that we give up something for another thing.
We cant have the both at the same time.
example:-
Suppose we go for shopping and we have a limited budget.
Fortunately two dresses are chosen by me and I want to buy the both dress.

Since my budget is less so only one I can afford.
I have to give up one dress so that i can buy one.
The one which i am sacrificing is the opportunity cost.

4)Utility:-
It is the satisfaction we get after using one product or it can be many things
Suppose we go to a place and satisfaction we get there after going is the utility.
Example:-
We went to a hotel and ordered biriyani.
The satisfaction we get after having that biriyani is the utility of that product.

5)Diminishing Marginal Utility:-
The concept says that as we increase our consumption of any product then the marginal Utility of that product decreases.
Example:-
We went to KFC and ordered one bucket of chiken for myself.
After having 4 pieces, the satisfaction level decreases.
I can't have more of it. This concept is known as the Diminishing Marginal Utility.

5 concept of Economics
1) law of Demand
Law of demand states that there is an inverse relation between price and quantity demanded. In other words. If price of product increases demand will decreases and vice versa. Law of demand states movement along a demand curve rather than shift in demand curve.  The law of demand may not work in case of Inferior goods and Giffen good.  It will work in case of Normal goods.
For Example. Recently price of petrol has increased. This led to decrease in its demand as consumer started using more of public transport rather than personal convince which results in more costlier. So this show law of Demand, as and when Petrol price increases it's demand will decrease and vice versa..
2) Taste and Preference
One of the determinant of demand is taste and preference because this will directly or indirectly affect the demand. As Economist have defined Rational consumer are the one who think systematically and work accordingly. So Rational consumer will buy the products according to their taste and preference. As they will buy what they like it and not according to the demamd of the product because it will give satisfaction to consumer.
For eg   As trends of clothes changes taste and Preference are also changing like girls would like to wear more of western clothes as compared to salwar suits. This is due to change of their taste and preference which will increase the demand of western clothes and decrease the demand of salwar suits.
3) Opportunity Cost
Opportunity cost is the cost of the next best alternative. If you choose one alternative over another, then the cost of choosing the alternative becomes your opportunity cost.
As Investors always confused with options about where to invest their money to receive the highest returns. In order to choose best options, they choose one which give them maximum benefits and that become the opportunity cost. For Instance After doing graduation, I had two options either to go with job or with furthur studies. I chose to do MBA that becomes Opportunity cosr.

4) Law of Diminishing utlity
It states that all else equal as consumption increases the Marginal Utility derived from each additional unit decreases. In other words The Mu of a commodity diminishes as the consumer consumes
more and more quantity of goods . MU is the marginal utility that results from the change in the Total Utility resulting from 1unit change in the consumption of a commodity per unit of time.
For Exampe; In the situation of starving when consumer recives one chappati that chappati will give him maximum satisfaction and the second chapati he eat will give him less satisfaction and this will go on and result can bn negtive also.


5  People respond to incentives
Investment is something to which people act. It is not always in monetary term, it can be qualitative also.People respond as and when they see any benifit in it. In the situtaion given in exam, Many star hotels offer unlimited buffet meals in order to attract more and more customer amd to get more benefit because people will definetly pefer to get more benefit. For Eg; If Big Bazar is providing 20% discounts on food products then consumer will defintely respond to that.

Principles Of Economics in Daily Life

Principles Of Economics in Daily Life

We often see restaurants like Pizza Hut, Dominos and many other offering unlimited meals from time to time. Due to which people get more attracted to these restaurants and often visits them. Hence as per the principle of economics, this concept is referred to as People Response To Incentives. As incentives are something which induces a person to act, therefore by seeing the unlimited meal offer people response to it positively as by paying only a minimum amount they can enjoy the unlimited food.

Nowadays we can see that families visiting the hill station as their holiday destination is more compared to religious places. In terms of Economics this concept can be explained as Principle of Diminishing Marginal Utility, because the more they visit the religious places within a specific period of time, the less additional utility they derive by visiting the religious places again and again. Hence the Marginal Utility gets diminishes over a period of time and therefore change their option as per their taste and preference and chooses to visit the hill station as their holiday destination.

Looking into the scenario of Indian IT Industry, its success is on account of their ability to offer products at low prices, we use the economic term Surplus in terms of both customers as well as producer. Here as the consumers need to pay a lower amount in compared to the amount which they expected, hence we can see the term Consumer Surplus, as there is a difference between the price the consumer is willing to pay and what he actually pays.  But at the same time, we can also see here that the producers will sell the products at a higher price if the consumers are buying it more. Thus the difference between the price producer is willing to sell and the price at which he actually sells is seen in this case. This is Producer Surplus.

There are various restaurants which offer diverse menus which include varieties of option in both depth and breadth, while there are others which offer only a few items on their menu. Hence it becomes difficult for customers to make choices. Here the economics term People Face Trade-Offs is used. We know that people make decisions on the basis of different ideas. Thus, in this case, we can see that as some restaurants are offering diverse menus while others are offering just a few items, therefore to get a particular item from one menu people might have to give up other items from a different menu.

We often see that due to unseasonal calamities such as flood, storms or due to an unseasonal shortage of some particular crop the price of the product affects the demand as well as its supply. This concept in economics refers to Price Mechanism where as per the demand and supply, the prices of goods are determined. Therefore we can see that due to natural calamities the production may be low but yet the demand is the same, which will further led to an increase in price.

Conceptual Understanding of Economics In Real Life

Demand

Demand is the consumer desire and ability to purchase a product or service. Without demand no business can operate in the market. Demand is backed by ‘Law of Demand’ which states that if the price of a good increase, the quantity demanded decreases & vice-versa.

Example: - When I was pursuing my Graduation, I used to go the college via motorbike, so when there is hike in the price of petrol, then I only go to the college and not anywhere else whereas earlier I used to go to different places also, after college timings. So which means that when the price of petrol increases, I consume less of it due to which its demand decreases.

People Respond to Incentives

Here we can see that if we offer more in less price, the people responsiveness towards the product or service increases. In other words, if someone offers more by taking less, people tend towards that product or service because it offers more in less price.

Example: - Suppose I have gone to purchase a shirt in a shopping mall, there I can see that the price of the shirt is Rs.2000/- but it that shirt there is a tag which tells about Buy 1 Get 1 Free, so which attracted me towards it and at the price of a shirt I purchased two shirts. So it will provide me more by taking less.

Number and Price of Substitutes

As we can see that as the number of substitute product increases the price of the product decreases.

Example: - There is a mobile brand offers for around Rs. 30000/- plus smartphones & then there is another brand which offers for the same features at Rs.20000/-, so people shift from 1^st brand to 2^nd brand due to its price and availability of all features. Now, the 1^st brand has to reduce its cost and offer the product for around Rs.20000/-, so that to match the competency. So here we can see that according to the substitute product the price of product decreases.

Supply

Producers willingness and ability to offers products at various prices in the market. In other words, supply is the total quantity of products or services available to the customers.

Example: - There is a company called HUL, which product we are using from long before, due to its supply or availability in the market, it is available in our nearby stores and it is known everywhere.

Utility

Utility is the measure of satisfaction which refers to the level of satisfaction which one received after consumption of a product.

Example: - I purchased a shirt which is comfortable for me, so in which I can say that I obtain full satisfaction from that product.

SOME OF THE BASIC CONCEPTS OF ECONOMICS

1.)   LAWS OF DEMAND: The laws of demand states that when then the price of a product increases the demand of that product decreases.

EXAMPLE: We will find that if the price of the butter suddenly rises then we will find that the demand for the butter will decrease because there will other substitute in the market like meoneese and ghee.

2.)   PEOPLE RESPONED TO INCENTIVES: people often respond to the incentives because they are being benefited more from that.

EXAMPLE: We will find that when we are browsing through a shopping app and we find a discount on a product then we will tend to buy that product even more. This is how we know that people respond to incentives.

3.)   OPPORTURNITY COST: Opportunity cost is something that we give up to other product.

EXAMPLE: We had event during the exams so I had to leave my studying for coordinating during the exams. This event which I was performing without studying during the exams is an example for opportunity cost.

4.)   UTILITY: Utility is the satisfaction that we obtain after the using the product.

EXAMPLE: Suppose we are consuming 2 ice-cream then the total number of satisfaction that is obtained from consuming those ice-cream is known to be as utility.

Five Concepts of Economics

LAW OF DEMAND

This law states that if the price of a good increases, quantity demand decreases and the price of a good decreases, quantity demand increases. In other words, price and quantity demand are inversely proportional to each other.

Example

When the price of vegetables increases, the quantity demanded by consumer decreases. It’s a normal human nature.

LAW OF SUPPLY

This law states that if the price of a good increases, quantity supply increases and the price of a good decreases, quantity supply decreases. In other words, price and quantity supply are directly proportional to each other. It means that supplier/producer are willing to offer more products for the sale in the market at higher prices by increasing production as a way of increasing profits.

Example

If the price of the dairy milk increases from Rs.20 to Rs.25, the quantity supplied of dairy milk also increases.

OPPORTUNITY COST

Opportunity Cost is also known as Alternative Cost. It is the cost of something is what we give up to get it. While making a decision, person should be aware of the opportunity costs that accompany each possible action. A choice need to be done among best alternative options. We have to choose such type of alternative from which we can get benefit.

Example

When I was about to purchase the mobile phone, there were 2 companies in which I was confused. 1^st one is Motorola and another one is Samsung. But at last I ended up buying Motorola. So my opportunity cost was Samsung.

TASTE & PREFERENCES

Demand of a good depend on the tastes and preferences of a consumer. A change in taste and preferences affects the quantity demand of different products. Because different people have different taste. All are having different choices. Some may like a product, but it doesn’t mean that the other person likes that product. And the tastes and preferences of a consumer are not fixed always. May be last year a person liked one product, but after one year that person doesn’t like that product. Tastes and preferences of a consumer changes according to time changes. This is called taste and preferences.

Example

My taste and preferences from last year, last year my taste for shirts was more as compared to t-shirts but now I tend to buy more t-shirts.

PRODUCTION FUNCTION

From the given input/amount, the maximum output that can be produced is called production function.

Q = K + L

Q is the quantity output

K = Capital

L = Labor

In short term, only labor changes.  It refers to a period of time in which one or more factors of production can’t be changed. Factors that can’t be varied over this period are called fixed input.

In long term, capital and labor both changes. It refers to the period where all inputs are variable.

 

 

Law of Demand, Diminishing marginal utility, Mobility, Trade off, Rational people think at margin.

Law of Demand-

Example:- usually college students go to grocery shop to Harsha, suppose the price of one maggie is rs.10, if Harsha decides to raise the price to rs.12 then the amount of units sold will decrease which means demand is decreased and when price is decreased to rs.8 then the demand will increase.

Diminishing marginal utility-

Example:- Ajay everyday goes to grocery store to have maggie, everyday having maggie will lead to decrease in level of satisfaction which Ajay gets and at one point it will diminish as in it will be over.

Trade off-

Example:- Daniel goes to a shop to buy one kg of rice, he usually visits that shop and he always buys a chocolate which is his favourite, but now he has to buy rice so he sacrifices chocolate as rice is his necessity.

Rational people think at margin-

Example:- Vijay goes to buy a brand new television in a showroom, so he will look at all the features and the technology used. He will look at benefits he will derive from buying the television.

Elasticity-

Example:- when the price of sugar increases the demand for tea decreases because customers usually buy both sugar and tea together and as the price for sugar increases, demand decreases which also affects the demand for tea.

Economics with principles in simple way .

Law of demand :- As we all know that demand is indirectly related with price. So if any brand offer any product at lower price than automatically the demand of that product will rise .

Example :- If any indian brand offers mobile phone at cheaper price than automatically the demand of that product will increase and the demand for other brands will fall.

People react to incentives :- It is the situation when people choose that product when they get more marginal utility.

Example :- If a person have to choose between same product with different brand with other one having discounts and extra services than obviously a rational person will choose the discounted one .

Rational people think at the margin :- People always choose that product where they get more satisfaction at that same price .

Example :- Suppose a person gone for shopping, in SHOP 1 he is getting a combo of a sunglass , tshirt , wallet and in SHOP 2 he is getting a combo of the same mentioned above with a extra of denim in the same price , than majority of the population will choose the SHOP 2 .

Law of diminishing marginal utility :- When a person consumes another unite of  a particular commodity than the utility of the product will decrease.

Example :- If a consumer will consume a commodity for more than one time than the utility will be diminished as compared to the 1st time .

Opportunity cost  :- The Cost of something is what you give up to get it .

Example  :- Example if you want to buy an iPhone so for that you are savitng money for last 7 months. So you are sacrificing many luxury for purchasing an iPhone.

PRACTICAL ASPECTS OF ECONOMICS

1.   Law of diminishing marginal utility

Law states that the more you consume a good in a specific period of time, the less the additional utility is derived from an additional unit of good. It simply means that the more you consume a good the less amount of satisfaction you derive from consuming an additional unit of that good.

For example-

-          Having dinner at a particular restaurant week after week will lead us to diminishing utility. We won’t have the same amount of satisfaction as we had when we first when there.

-          Theatre artists perform at multiple cities so that they capture new audiences and people are a particular one city does not feel diminishing satisfaction because of watching them over and over again.

2.    People respond to incentives.

       An incentive is a reward that motivates people to act towards it. People make a purchase according to what they are receiving in addition to that product.

      For example

-          Discount offers at malls. Various brands give discounts on products so customers buy their product.

-          Many start hotels routinely offer unlimited buffet meals. As consumers think they are getting unlimited food by paying less amount. But this soon results in diminishing returns and hotels earn a huge profit.

3.    People face trade offs

       Trade-offs is situation customers face when they have too many options. They get confused on what to buy. Here they do cost benefit analysis and decide.

                         For example

-          Too many similar types of dresses available at one store. Ultimately we get confused and end up buying nothing from that store.

-          Stores where product assortment is diverse will have less sales as compared to stores having a narrow assortment. There people can make quick decisions.

4.     Opportunity cost

        The cost of something is what we give up to get another good. You have to make sacrifice. Cost of the next best alternative.

      For example

-          Choosing between various colleges. This is a very critical decision. Students face trade-offs on which college is better. They compare the colleges by doing cost benefit analysis and then identify the opportunity cost to be given to select the best college.

-          Three prospective location- A, B, C having 750,900,850 net benefits respectively. Best location will be B because it has additional net benefits as compared to A and C.

5.     Taste and preferences

        Taste and preferences are individual’s choice over goods and interests. Taste and preferences play a large role in decision making. They vary from individual to individual.

        For example

-          There are two friends. One likes going out and trying new places to eat. While the other doesn’t likes change and stick to limited places only. Here the choice of restaurants is different between two friends.

-          Young men and women having keen interest to participate in fashion shows because fashion shows are trending. Young men and women prefer them and recline towards them and enjoy their preferences.