Tips To Apply Economics In Your Everyday Life

Economic concepts are easy to understand when you apply them in your everyday life. You might not know the economic term but you are using the concept daily.

Every individual in society practices economics, whether they have learned it as a subject or not. Lionne Robbins stated that economics is a science that studies human behavior as a relationship between ends (wants) and scarce means (resources), which have alternative uses. Everyone engages in economic activity daily across society.

Making Choices Every Day 

Imagine you are going to buy a shirt. You have 500 rupees in your hand. You selected two shirts, one black and one blue, and wish to buy both, but their overall cost is 800 rupees. With 500 rupees in your hand, you need to choose between the two shirts you selected because you have limited financial resources. A choice problem results from finite resources and limitless human desires.

Follow Opportunity Cost

When you choose a black shirt over a blue shirt, the opportunity cost of a black shirt is a blue shirt. Opportunity cost is the cost of the best alternative foregone. In simple words, when you give up a good or a service to buy another good or a service, it leads to an opportunity cost.

The More Consumption, The Lesser The Satisfaction

Consuming more quantities of goods leads to less satisfaction with each good you consume. In economics, it is known as the law of diminishing returns or the law of diminishing marginal returns. Suppose you bought three oranges. The first orange will give you maximum satisfaction (utility), whereas the satisfaction you get from the second orange declines. When you consume the third orange, you get less satisfaction than you got from the second orange, or it could even be negative. The more you consume, the less satisfaction you get.

The Choice Of Saving Or Dissaving During Inflation

You know when to save and when not to save. When you see that the value of money is declining, that is, inflation is coming, and you prefer to spend more and save less, as shortly, the money you will be holding will have less value due to the rise in the price level of goods and services. Investments during inflation will cost you more and give you a lower return.

Following Veblen Effect

You assume that the good with a higher price will be better than the good with a low price. You end up buying a higher-priced good assuming it would be better in quality and durability without checking it, which is known as the Veblen effect. It could even lead to a loss as the other goods might have the same quality but be priced lower by another brand.

All in all, economics is practical; it does not need to be learned before practicing, and everyone practices it at every phase of their daily lives.