Insight to live Ecnonomics

1)      UTILITY- The happiness or satisfaction derived from consumption of a product or services (as said by Gregory Mankiw).

Instance 1-After trekking for three hours, I felt exhausted and hungry. Finally, at the top I was lucky to find bread & omelette at a small hut on the hill top. The satisfaction derived after consumption of the meal cannot be explained.  

Instance2- Like many of you, I am a fan of Tom Hanks and his remarkable work. I was waiting for his movie “Angels & Demons”, which was not premiered on nearby multiplex. After a long wait, finally I got the movie from one of my friend.

As we can see in both of the instances that the satisfaction & happiness derived from the fulfilment of the need. This in economics is known as Utility, which can be measured in terms of utils in cardinal utility and by ranks in ordinal utility.

2)      PRODUCTION FUNCTION- The relationship between quantity of input factors used to produce quantity of output.

 Instance1-I worked in a manufacturing unit at a firm as a production planner & supply chain engineer. We saw huge rise in demand and recruited fifteen people to complete our targets and increase production.

Instance2- This is in the same company I used to work, where we went through the installation of another unit of CNC machines to enhance our production and meet the targets.

In instance 1, we see that the variable factor were the workers which were recruited to meet the demand, which can be said shot run function also here is the factor which effects output. Similarly installation of a unit is variable capital factor of long run which might take few months or year to start, but aims at enhanced production in future.

3)      LAW OF DIMNISHING MARGINAL UTILITY- The more of a good that one obtains in a specific period of time, the lesser the additional utility derived from it.  

Instance 1- Me & my brother went to Barbecue in Kolkata which offers unlimited kababs, grills, maincourse & deserts. At first we ate to our hearts content, but then we were not able to go for deserts which was indeed looking delicious.  

Instance 2- This is again an instance in the production unit where at first 10 workers were recruited to increase the output, on the second week there were 5 workers taken in the workshop which enhanced the production by 10 %. Similarly three more workers were recruited to improve more productivity. But the production remained the same.When observed, it was found that the manpower to machine allocation was not helping in production. as there were limited machines and layover of the workers were more. These explains the law of diminishing marginal utility.

1)      INDIFFIRENT CURVES & PRICE CONSTRAINT- Indifference curves shows the choices consumer makes as per his preferences, taking an account his income & satisfaction to achieve more of a particular product & services.

Instance 1-While I was on shopping, I had a tight budget & wanted to go for KFC chicken buckets & watch two movies subsequently. As the budget was fixed, so I had to compromise with one movie & KFC.

Instance 2- I went to grocery to buy wheat & cereals, as budget was tight. I had to compromise with 1 kg of wheat instead of 2 kg to go for 0.5 kg cereals.

These two examples shows that the customers have to make a choice between two products and compromise on one product to derive more utility from other product.

2)      OPPORTUNITY COST- When you give up on something to get some other thing, the cost you gave in to achieve that particular product or services is opportunity cost.

Instance 1- I got a job in BGR Energy as a Sr. Quality Inspector before joining IBA. I took this decision as I always wanted to enrol my career in marketing. Here the lost job opportunities & salaries will be my opportunity cost.

Instance 2- Today as I have to write economics blog & submit within a particular time constraint, hence I spent my time writing & framing examples, in turn I couldn’t rehearse for speech. Hence the time lost in writing the blog is the opportunity cost bared.