Trade Offs and Opportunity Cost
Economist
tend not to in a simple language they have developed their own more technical
vocabulary to describe the scarcity and choices.
For example,
when we sacrifice one thing to obtain another, that’s called a trade-off.Once i Only had money to buy a mobile phone or a smart watch but not both. That’s where i faced a trade-off. There was a time when i was trying
to decide whether to take a day off on Saturday or to go to library and study? That’s a trade off
Trade-offs
create opportunity cost that’s one of the most important concepts in economics.
Whenever you make a trade off the thing that you do by not choosing is
opportunity cost. I bought that mobile phone. Then that smart watch was my opportunity cost. I decided to study in library on Saturday, My opportunity cost was a
relaxing day hanging out with my friends.
Everything
has opportunity cost if you bought something, you could have always bought
chosen to buy something else instead. If you chose to spend your time in a
particular way, you could have always chosen to spend your time by doing
something else. Something else is
your opportunity cost.
Consumer Behaviour
Consumer
behaviour is the study of individuals, groups and organisations behavior associated
with the purchase, use and disposal of goods and services
There are
some assumptions made in consumer behavior
1)
Rationality
– A consumer is assumed to be rational he always aims at the maximization of
his utility, according to his income and market prices. It is assumed that he
has full knowledge of all relevant information.
2)
Consistency
– It is assumed that the consumer is consistent in his choice that is if in one
period of time he chooses A Over B, he will not choose B over A in another period
if both bundles are available to him.
3)
The budget constraints of a customer – The customer
has a given income which sets limits to his maximizing behavior
My fathers income does not allowing him to buy something which will cross his budget then he will not
buy that product.
4)
Available
substitute – If a substitute is available to a customer at a comparatively less
price than its costlier counterpart then customer will buy the substitute.
For example, one plus
phones which is known as the flagship killer, i bought the one plus 6 recently because one plus was providing flagship specification at a comparatively cheaper price than costlier flagship phones offered by Samsung and apple. It is the same
with Tesla it is offering electric car which is on par with the costlier
traditional fuel cars so more and more customers are buying it.
Consumer and Producer Surplus
When a
consumer buys a product at a lesser price than what he initially intended to
buy it for then it is called as consumer surplus it can also be defined as the
consumer satisfaction for which he doesn’t have to pay.
For example, I went to buy a cheap phone to use it for an extra sim that i had, i thought of a budget of 1500Rs. but when i went to store i found that the price of that phone was 1200Rs. those 300Rs.
that I saved on that phone is my consumer surplus.
Producer
surplus on the other hand is what a seller is willing to sell a good for and
what he actually gets in the trade in simple words selling price-cost
price(profit)
For example, i wanted to sell a game that i owned i thought i would sell it for around 300Rs. but a friend of mine said he'll buy it for 500Rs. and i immediately sold it to him the extra 200Rs. that i got is my producer surplus after my graduation i planned on selling all my book so i went to a store to sell it i thought of selling it at 2000Rs. but when i went to the store the shop owner told me that these books are in demand so he is willing to buy it for 3500Rs. so sold it to him, the extra 1500Rs. that i made is my producer surplus.
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