Economics Everywhere...

1.People face trade-offs: -

Its defines the behavior of the customer, what to buy and what not to buy. In other words, bifurcation of need and want. Need are something which the is utmost requirement. On the other hand, want is something we desire.

Example 1:-I had Rs.1000 with me. I wanted a new headphone but my brother needed some books for his assignment. So it’s better to buy the books for my brother rather buying a new headphone which is not much required as I already had one.

Example 2:-One day on the way back to my home I crave for cold drink and rushed to the nearest shop. A poor old lady was sitting in the front of the shop asking for a piece of bread from everyone passing by. I had only ₹15 with me. Now it’s a dilemma weather to help her or satisfy my want. I preferred to help her rather buying cold drinks.

2.People Respond to Incentives:-

When people are offered with some incentives they induced to act. In economics every sale and purchases depends on incentive. The best way of explaining People Respond to Incentives is by examples which are as follows: -

Example 1:-One day early morning, my mother asked me to go for grocery. It was cold and I was too lazy to go out. But when she told me that she will buy me something if I do that I went to the grocery without a word. So just because she offered me something I agreed to her in seconds. I reacted to incentive.

Example 2: - When I was at school, my class teacher asked me to become the class monitor. 1^st I was a bit skeptical about that because, a class monitor has lot of responsibilities. But when she told that I will get extra marks in every subject, I accepted it without thinking twice. For getting extra marks I didn’t considered other factors and consequences. I responded to incentive.

3.Demand:-

Consumer desire, ability and willingness to purchase goods at various different price of it is known as demand. Demand for a commodity depends on the price. If price is high the demand decreases and visa-versa. For example-

Example 1: - At amazon or Flipkart we can see that when the price of a product is low then demand increases and as a result the product goes out of stock. This is due to the excessive demand for the product.

Example 2: - Recently when the price of the fuel went up to ₹80.76 per ltr, the automobile industry got a huge downfall. People where buying less car, bikes etc. As price increased drastically, the demand decreased as people were willing to use public transport.

4.Consumer Surplus

It’s the difference between the price a customer willing to pay and actually what he pays for a product. It is the leftover of what the consumer had and what he spends on a product. For example: -

Example 1: - Just before coming to Bangalore I went for shopping with ₹8000. I got 4 shirts and 3 pants for ₹9500 discounted at ₹7000 after bargaining. So ₹2500 is my consumer surplus.

Example 2: - one day I went to buy fish from the market. The seller asked me ₹500 per kg for a particular fish. The guys beside me had the same fish for ₹400. I asked the seller that why such difference. After some chit-chat with him he agreed for ₹350 per kg. So I got ₹150 as consumer surplus whereas the person beside me got ₹100.

5.Law of diminishing Marginal Utility

Law of diminishing marginal utility states that with every successive unit consumption the utility derives from it decreases. In other words, as consumption of a good increases, Marginal Utility derived from each unit decreases. Examples are as follows: -

Example 1: - On the way back from Puri I brought lots of sweets that I like. First day I had 5 of them. Again next day I ate 5. On the 3^rd day I am done with only 2. After that I asked my mom to give the rests to others as I am not willing to eat them anymore. This shows how law of diminishing marginal utility works.

Example 2: - 1^st week of buying my new phone I was 24*7 into it- finding new features, camera, installing playing every game possible, etc. A week later it reduced to few hours a day. Now hardly I use, that to for social media. And I feel like buying a new phone. So using the same product again and again for long period reduces its utility.