Short Notes on Fives Concepts of Economics with Examples

1.PEOPLE FACE TRADE-OFFS:

Making decisions requires trading off one goal against another, to get one thing that we like, we have to give up another thing that we like.

1^st Example-

As I am a football player and I would love to play football but the exams are ahead of me and I would want myself to be topper so I couldn’t attend my football match which is tomorrow.so I am sacrificing my football match to be topper of the batch.

2^nd Example-

Tomorrow I have a family function in my house, at the same time I have my friend’s wedding tomorrow so here I face trade-offs. I chose my family function and gave up to go to my friend’s wedding. Here the people face trade-offs concepts comes.

2.LAW OF DEMAND:

When price increases quantity demand decreases and vice versa based on the customers, price is inversely related to quantity when all other incentives should be consent.

1^st Example-

As I am consuming 10 Maggi packets in a week, as the price of Maggi increases, I will be consuming only 5 Maggi packets in a week.

2^nd Example-

As I used to eat 2 plates momos for 40 rupees but now the seller has increased his price for 80 rupees so I am eating just one plate of momos

3.Marginal Utility:

It is the extra benefit that the consumer gets that consuming the extra unit of the product. Additional satisfaction derived from the consumption from one additional unit.

1^st Example-

I was very hungry last week and went out to eat chaat items with my friends I ordered a samosa chaat, I ate a first bite of it was very satisfying and then I was willing to have another after having that I was more satisfied than I was before

2^nd Example-

Last Sunday I went out with my friends to have pizza with them we ordered large number of pizzas as I ate only one large pizza I lost the interest on another pizza.

4.Consumer surplus:

Consumer surplus is the difference between what the consumer thinks he will pay and what he actually pays.

1^st Example-

Once in tour in ooty I was shopping in streets I saw awesome jacket been sold for 1500 rupees I spoke to the vendor to reduce the price, after a lots of bargaining the vendor agreed to sell it for 1000 and I got the jacket for 1000 rupees, here the 500 rupees is consumer surplus.

2^nd Example-

In my college canteen one cool drink was offered for 15 rupees but as I was secretary of the club in college the cool drink was offered to me for 10 rupees, 5 rupees is the consumer surplus.

5.Producer surplus

The producer surplus is defined as the difference between at which price the seller sold the product and at which price he was willing to sell.

1^st Example-

As my friend have second hand mobile shop so he got moto E5 mobile for 10000 so he decided to sell it for 12000 but after 3 hours a customer came and asked for the moto mobile with budget of 13000 as this was the great opportunity for him he sold that moto E5 for 13000 and here the producer got the producer surplus for 1000

2^nd Example-

Outside the college momos seller used to sell a one plate of momos for 60 rupees but on first day after college he saw me as new consumer and thought me that I was ready to pay any amount so he offered me momos for 70 rupees and here 10 rupees is the producer surplus

6.Availability of close substitute

  The goods with close substitutes have more elastic demand than other products, because consumers easily change their mind to buy substitute products. Consumers are more focused on incentives. When a substitute product with same quantity of less price always attracts the consumers to purchase. Increase in price of one product leads to increase in the demand of other product.

1^st Example:  Sprite and 7up are close substitutes. If a small price change in Sprite will lead consumers to purchase 7up. As 7up is the close substitute and provide the same quantity. The sales of sprite decrease as the result were 7up sales quantity will be increased

2^nd Example: Imagine, you are a employee and you use your bike to go office daily. As the sudden rise in petrol rate end-up you to use public transport. By using public transport, you can save money. Along with you there are many who started using public transport. Now the demand of public transport is high.

 Refered by book-PRINCIPLES OF MICROECONOMICS-N.GREGORY MANKIW