Question

Please give 3 to 4 detailed examples of the application of economics in life situations.

(include these terms in the examples)

*the marginal analysis, opportunity cost, purposeful behavior/rational self-interest, choice, scarcity*

Answer 1

Trade off : Because the resources are scarce(limited) in everyone's life, we have to choose something over everything everytime we faces a dilemma in making a decision. When you faces a complex issue to make a choice for picking one product out of many, to choose one business plan out of many, to pick one job proposal out of many there always exist the case of Trade off. In all these things we use finding out the benefits of a thing and cost related to it and calculates the opportunity cost(cost related to foregone activity) of another thing which we do not pick.

Higher Utility: Everyone is rational (trying to capture maximum benefit) in this economy. They try to maximize the utility level with prices they pay for the products. If the customer have two choices of picking two products shirts and tea. In first case they can pick 2 shirts and 3 kg tea, In second case they can pick 3 shirts and 2 kg of tea. Customer will always to pick that combination which gives them maximum satisfaction(utility).

Diminishing Return of Product: We always see the pattern that whenever we consume more of a thing, the marginal benefit (extra benefit of consuming one unit) declines with every unit consumed i.e. consider a case of you being  extreme hungry, after eating one chapati your hunger will decline, you will get maximum satisfaction from 1st chapati, satisfaction from every additional chapati will decline.

Externalities: It happens when an activity gives profit to a person and loss to the whole society. The classic example over here is when an firm in the locality dampens waste material in local river which kills the fishes from that river whereas fishes are the living model for that locality as they sell fish to survive. The firm must have calculated the marginal analysis (analysis of marginal benefit and marginal cost of something) of buying a chimney which reduces the wastage they damp to river. So they decided to damp it into the river because buying a chimney was costing them more and just damping the waste into the river costed them nothing.