Five
economic concepts, principles and models
With
Real Life Examples
People Face Trade Offs:
Trade-off is basically choosing one
thing over another. As modern technology advances, one could argue that society
has traded-offs battery life in personal electronics for a smaller size and
weight of the individual device.
Examples:
1) I was going to buy a “10or” Mobile phone but after
seeing the features of “Realme” I decided to buy “Realme” in place of “10or”.
In this “10or” is my trafe-off.
2) Some days ago I had gone to a Restaurant where I
want to order cake but after that I decided to take an Ice cream and left the
cake.
Demand:
Consumer’s desire, ability and will
to purchase goods at various prices.
Law of Demand:
The law of Demand states that
quality purchased varies inversely with price. In other words, the higher the
price, the lower the quantity demanded. The reason for this phenomenon is that
consumer’s opportunity cost increases so they must give something else up or
switch to the substitute product.
Example:
1) The famous item in KFC has gone for a price hike.
Ever since, I purchase less amount of that item and it is no more the most
famous item. The quantity demanded has decreased.
2) The famous item in KFC has decrease in price. Ever
since, I purchase more amount of that item and it is more the most famous item.
The quantity demanded has Increased.
Supply:
Willingness and ability of the
producer to offer the goods in the market for sale at various prices.
Law of Supply:
Law of Supply states that other
factors remaining constant, price and quantity of a good are directly related
to each other. In other words, when the price paid by buyers for a good rises
then suppliers increases the supply of that good in the market.
Example:
1) When the price of the chocolate increases then the
supply of the same product will increase in the market.
2) When the price of the chocolate decreases then the
supply of the same product will also decrease in the market.
Utility:
“Utility” means The satisfaction
obtained from consuming a commodity.
There
are two types of Approach of utility:
-
Cardinal Approach
o The cardinal utility says
that utility measurable and by placing a number of alternatives so that the
utility can be added. The index used to measure utility is called “untils”
Example: Today I went to have my dinner where
I have 50 utils of fried rice, 30 utils of noodles and 20 utils of Manchurian.
-
Ordinal Approach
o The Ordinal utility says
that utility is not measurable but it can be compared. Ordinal approach uses
the ranking of alternatives as 1st, 2nd, 3rd
and so on.
Example: Some days ago I and my friend went
to Dominos and ordered 2 Pizzas and I ate 1 of them.
Marginal Utility:
Marginal utility is the addition
made to the total utility by consuming one more unit of Commodity.
Example:
1) I was going to a salon for hair cutting costs 350.
However, I can pay for five haircuts, totaling 1750, and receive a coupon
for a sixth cut free. So i decided to do sixth cuts because i get it for free
this is marginal utility.
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