Economic Incentives-
It is a kind of motivation, it can be extrinsic or
intrinsic, which drives us to behave in a certain way while preferences are
your needs, wants and desires.
They are mainly of two types-
1.Extrinsic Incentives-
Extrinsic Incentives comes from outside a person. These are
the typical economical incentives which includes bonuses, income, profits, cash
rewards etc. And it can be non monetary as well such as fame, power or social
status etc.
For Example: In 2016, A Surat businessman who is a diamond business
tycoon, had gifted 1260 cars and 400 flats to his employees as Diwali bonus, in
which he spent approx. ₹ 51 crores for his employees.
2.Intrinsic Incentives-
Intrinsic incentives comes from inside a person. Like getting
satisfaction after performing a work is intrinsic in nature. It is also called
psychologic incentives.
For Example: If an idea of giving some valuables to a needy
or to a poor makes you feel good, and you will gladly accept to pay to do it,
which ends your spirit for volunteering.
Consumer Surplus-
Consumer Surplus is basically defined as the difference
between the price, which consumer is willing to pay and consumer actually pays
for the goods and the services. It is defined as by the area under the demand
curve and above the market price. When price decreases consumer surplus
increase upto certain point.
For Example:
1. When you came out
of a party in a middle of a night and it is hailing outside, and you’re
standing in a lonely street corner, 20 kms away from home. And you decide to
book a cab with Ola and it shows about ₹500, which is much higher than the
normal rate. Though you book the cab anyways. Infact, at that instant you are
ready to pay as high as ₹1000 for that situation.
2. When you decide to
book a flight, lets say Indigo Airways and you check the rate for tomorrow’s
flight it shows ₹7,000. But you are not willing to pay for it. As you decide
you will go with other means of transport but if it becomes emergency for you
and you check on the same evening it shows ₹12,000 you will be ready to pay for
it as it is your necessity. So, you’re ready to pay for it.
Producer Surplus-
Producer Surplus is defined as the difference between the
price, which producer is willing to sell and the price actually sold by the
producer. It is shown by the area above the supply curve and below the market
price. When price decreases, the producer surplus increases.
For Example:1. Many people appreciate Audi for their styling,
mechanical performance and status appeal. Those who favor owning a Audi will
pay what they must to have the car of their choice. Consumers who can't afford
a new Audi at the lowest price level or who want the top of the line but can't
pay the price can always buy their favored Audi in the used car market. So, the
price of a Audi, whether new or used, is set by the price the buyer will pay
relative to the price the seller will charge. This sets up a situation where
buyers and sellers often negotiate final transaction prices, which are based on
the seller's supply of cars in relation to the buyer's desire to buy or demand
for the product.
2. In a recent news, “India about to become agri-producer
surplus” in which all of a sudden, agri surpluses, the proximate reason for
falling prices and farmer distress, appear to have become a huge problem from
Maharashtra to Uttarpradesh. This problem of plenty is causing farmer
agitations against falling rural incomes, worsened by 2016’s demonitisation and
rushed introduction of the GST in 2017.
The Law of Diminishing Returns:
The total output initially increases with the increase in
variable input like inputs, material, labour, technology and energy at a given
time but after some duration of time, it starts decreasing.
For Example:
1.If you initiate and optimize any work you get diminishing gains.
Invest more energy and you get negative returns. Over twisting diminishes as
opposed to enhancing the work.
2. When you lit a ciggerette, at first, you feel relaxed and
further you take drags it becomes more pleasure for you. Be that is may,
subsequent to smoke a specific sum, as it gets shorter you feel as it is Sunk
cost fallacy for you. Keep smoking and you feel rebuffed by by it.
Oppurtunity Cost:
It is the sacrificing cost, in other words it is the value
of what you give up to obtain something else.
For example:
1. I was living with my family in Raipur, but when I
took admission in Indus Business Academy I had to sacrifice my family lives. To
pursue post graduation in diploma management I had to sacrifice Raipur and come
to Bangalore. So here, IBA, Bangalore is opportunity cost for me.
2. In chattissgarh, The Chief minister assured
people that government will provide smart phones to the poor instead with that
money they can educate so many children and do welfare for the sake of the
people. So it would be opportunity cost to them.
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