People Face Trade-offs
The term means that a situation where a decision has to be made between choices. To choose a particular choice, the other choice has to be sacrificed.
Example 1 : When choosing for the right college to pursue PGDM I faced the situation that I now know is termed as Trade-off. Out of various colleges and extensive shortlisting I zeroed down on IBA trading-off all other colleges. There were exclusive features of many colleges which attracted my attention like the course fee, proximity to my hometown and many more, but I chose to weigh the characteristics and came out with the decision.
Example 2 : The amount of expenditure India does on the defense mechanism of the country is huge or for that matter any other country. India, being a developing country with the population that it has the expense on subsidy and other programs for farming gets affected. The expenditure in both the sectors is crucial but India has to face trade-off in allocating the monetary resource in the two above mentioned sectors.
Rational people think at margin
The term means the ability to weigh all the available options and come out with a systematic and well thought out decision.
Example 1 : In the above example regarding the selection of college I had to enlist all the advantageous features specific to different colleges and make a organized and well thought out decision that suited my requirements. The marginal benefit was taken into consideration and the decision was made.
Example 2 : Similarly in the above example regarding the allocation of resources to different sectors, the government thinks at the margin for optimum outcome and allocates the fund accordingly being rational.
People respond to incentives
The response of people tend to change when subjected to incentives.
Example 1 : The mall "D-Mart" that we have nearby offers discount on various products ranging from food items, clothes, stationery goods etc. many a times it has happened so that I end up buying more than I had planned before entering the mall. The principle of economics comes into play, the discount gives me reasonable amount of eagerness to buy more items.
Example 2 : The appraisal system that we have in corporate is an example of incentive-driven response by the employees.
Principle of diminishing marginal utility
It states that when an individual consumes more of a good, the marginal benefit of each additional unit of the good that the individual consumes decreases.
Example 1 : The simple example of any food item such as a bottle of sprite can be taken. The first time when we consume a bottle of sprite the utility or the satisfaction is maximum which decreases when we consume it for the second time. The marginal satisfaction associated with the consumption decreases.
Example 2 : The rich people tend to spend their money more carelessly or irrationally because of the additional amount of money that they have the marginal utility decreases.
Elasticity of demand
It states the sensitivity of the demand for a good to changes in variables like price and consumer income.
Example 1: The fact that increase in petrol prices usually results in a tendency to use vehicles more productively i.e people tend to use their vehicles more wisely so that the consumption gets reduced changes the demand of petrol.
Example 2 : The per capita income of India dictates the demand for luxury goods as the per capita income increases the demand for luxury goods also tend to increase.
The term means that a situation where a decision has to be made between choices. To choose a particular choice, the other choice has to be sacrificed.
Example 1 : When choosing for the right college to pursue PGDM I faced the situation that I now know is termed as Trade-off. Out of various colleges and extensive shortlisting I zeroed down on IBA trading-off all other colleges. There were exclusive features of many colleges which attracted my attention like the course fee, proximity to my hometown and many more, but I chose to weigh the characteristics and came out with the decision.
Example 2 : The amount of expenditure India does on the defense mechanism of the country is huge or for that matter any other country. India, being a developing country with the population that it has the expense on subsidy and other programs for farming gets affected. The expenditure in both the sectors is crucial but India has to face trade-off in allocating the monetary resource in the two above mentioned sectors.
Rational people think at margin
The term means the ability to weigh all the available options and come out with a systematic and well thought out decision.
Example 1 : In the above example regarding the selection of college I had to enlist all the advantageous features specific to different colleges and make a organized and well thought out decision that suited my requirements. The marginal benefit was taken into consideration and the decision was made.
Example 2 : Similarly in the above example regarding the allocation of resources to different sectors, the government thinks at the margin for optimum outcome and allocates the fund accordingly being rational.
People respond to incentives
The response of people tend to change when subjected to incentives.
Example 1 : The mall "D-Mart" that we have nearby offers discount on various products ranging from food items, clothes, stationery goods etc. many a times it has happened so that I end up buying more than I had planned before entering the mall. The principle of economics comes into play, the discount gives me reasonable amount of eagerness to buy more items.
Example 2 : The appraisal system that we have in corporate is an example of incentive-driven response by the employees.
Principle of diminishing marginal utility
It states that when an individual consumes more of a good, the marginal benefit of each additional unit of the good that the individual consumes decreases.
Example 1 : The simple example of any food item such as a bottle of sprite can be taken. The first time when we consume a bottle of sprite the utility or the satisfaction is maximum which decreases when we consume it for the second time. The marginal satisfaction associated with the consumption decreases.
Example 2 : The rich people tend to spend their money more carelessly or irrationally because of the additional amount of money that they have the marginal utility decreases.
Elasticity of demand
It states the sensitivity of the demand for a good to changes in variables like price and consumer income.
Example 1: The fact that increase in petrol prices usually results in a tendency to use vehicles more productively i.e people tend to use their vehicles more wisely so that the consumption gets reduced changes the demand of petrol.
Example 2 : The per capita income of India dictates the demand for luxury goods as the per capita income increases the demand for luxury goods also tend to increase.
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