Life Examples of 5 Concepts in Economics

Law of Demand: 

• The law of demand states that when the price of the goods or service increases then there will be a decrease in the quantity demanded by the market or customers.
• Law of demand shows a negative slope which is a downward falling from left to right in the graph.
• Price is inversely related to the quantity demanded, where all other incentives should be constant.

Example 1: Ramu is a daily labor worker, one day he went to a vegetable market to buy Carrot and Potatoes, he found that the price is very high that he can't afford so he went to the leafy vegetables. Here the demand for the product decreases with the increase in the price.

Example 2: Ravi  want to go MG Road so he would like to book a CAB, but the fare is so high that 

he can't afford so he dropped the idea of going in a CAB and had taken a BUS, the demand of the CAB decreases with the increase in the price.

Law of Supply:

• The law of supply states that when the price of the goods or services is increased in the market the quantity supplied will be increased by Firms and Suppliers.
• Law of supply shows a positive slop which will be an upward raising from left to right in the graph.
• The price and the supply will be directly related, where all other incentives should be constant.
• In the long run, new firms will enter the market.

Example 1: Somu is a farmer who kept his production of Onions in the Cold Storage due to lack of price. but when the price of the Onions increases he sold his Onions in the market. here the supply in the market increases with the increase the price. 

Example 2: When summer comes the price of the coolers increases then the firms will increase the supply of the coolers to increase the profit of the firm.

The Production Function [ Suppliers]:

• The maximum output Q that a firm can produce from every specific combination of input is called Production Function.
• The production function contains Land, Labour, Capital, Organisation.
• The short run refers to the period of time in which not more than one or more factor can be changed, Factors that can't change during this period are called fixed inputs. Ex: Labour.
• The long run refers to the period where all factors of production can be changed Ex: Capital.

Example 1: In the Software company a new project was taken which they need more employees to complete the project which the company can increase its output, this can be possible as the employees can be increased in a short run.

Example 2: The company wants to update a new technology so the company wants to invest some amount to purchase the machinery this can be possible in the Long run only. which the output increases by a change in the technology.

Indifference Curve:

• Two or more combination of goods that gives the same level of satisfaction when we consume the goods.
• Indifference curve will be downward sloping and convex to the origin.
• No two indifference curve will intersect each other.

Example 1: In mid-summer prasad want to the market to buy Mangoes and Watermelon, the amount of satisfaction that 1 watermelon is giving is equal to what the 2 mangoes are giving, Here the consumption of the product is different but the utility is same.

Example 2: Rani went to a jewelry shop for purchasing of gold and silver, the amount of satisfaction that 10Grams of gold are giving is equal to what 20 Grams of Silver are giving, Here the consumption of the product is different but the utility is same.

Consumer and Producer Surplus:

• The amount of price consumer is willing to pay for the product but the amount he actually pays to get that product is called Consumer Surplus.
• The amount of price producer is willing to sell his product to the customer but the amount he actually sold for is called Producer Surplus.

Example 1: Ramesh who went to a shop for purchasing a Shirt which costs Rs.1500/-, by seeing this he is willing to pay 1200/- for that shirt on the other side producer is willing to sell it for 750/- at last the price is fixed at 1000/- here the Consumer Surplus is 200/-, and the producer surplus is 250/-.

Example 2: Vinay want to go JP Nager so he hired a Car and willing to pay 500/- and the Car driver is willing to ask for a price of 300/- Finally the price was fixed at 350/-, Here the consumer Surplus is 150/- and the producer Surplus is 50/-.