Some basic concepts of business economics

1. People Face Trade-offs

People while making decisions between two or more things we have to make some type of comprise for one thing against the other.

Examples:

a.) If we want to go to a movie but there are two new movies released in this week then we have to compromise one against the other.

b.)If we want to construct a house then we have to select a cement brand among the all cement brands

2.Marginal Utility

Marginal utility is the additional utility we generate when we add one extra unit of input.

Examples:

a.)If we are doing exercise daily then for the first week we lose our weight by 2 kg then for one extra week we lose our weight by 1 kg extra .This extra 1 kg is called marginal utility.

b.)If we go to restaurant and order for a starter and after that we will order biryani then extra satisfaction we get is called marginal utility.

3.Principle of Diminishing marginal utility

The more of a good that one obtains in a specific period of time , the less the additional utility derived from an additional input

Examples:

a.)In the above example doing exercise daily here marginal utility per day in the 1st week will be more, for 2nd week it will be lesser and it goes decreasing.

b.)If we like eating chocolates then for every extra chocolate we get extra satisfaction but for two to three chocolates marginal utility increases after it starts decreasing.   

4.Consumer surplus

 Consumer surplus is price difference between the consumer willing to buy the product and actually buys the product.

Examples:

a.)If a consumer willing to pay Rs.1500 for  a pair of shoes  and goes to shop then there he saw an offer of  50% off and he bought for Rs.750 . Here Rs.750 is called consumer surplus.
b.)If a consumer  willing to pay Rs.3500 for a mattress and he bought for Rs. 3000. Here Rs. 500 is consumer surplus.

5.Producer surplus

Producer surplus is price difference between the producer willing to sell the product and actually sells the product.

Examples:

a.)If a producer is willing to sell a laptop for Rs. 30000 but due heavy demand he sold the laptop for Rs. 40000.Here producer surplus is Rs.10000

b.)If a producer is willing to sell a cement bag for Rs. 300 but due heavy demand he sold the cement bag for Rs. 350.Here producer surplus is Rs.50.