Economics is a division of social sciences that studies the market forces to determine the best use of limited resources. Studying economics will make you analyze the economy, and learn about its strengths and weaknesses.
So, you would think why is it important to study economics? The study of economics is related to every aspect that aids and benefits the community such as production, consumption, and transmission of wealth involving individuals, business establishments, governments, and countries. It is a fact that resources are scarce. So, entities must organize and manage the available resources. It will help gain max satisfaction. For your better understanding, below are real-world economics examples.
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What Are the Real-World Examples of Economics?
Here are some of the economics concepts and their real-world implications:
Supply and Demand
Supply and demand is a very basic concept in economics subject. Do you know what it means? Supply means the total goods the manufacturer circulates in the market. While demand is the quantity market contributors are willing to purchase. So, an efficient market is where the demand curve and supply curve come across and form an equilibrium. Hence, equilibrium means the position where supply and demand are enough for each other.
For instance, imagine a luxury shoe brand that trades high-value shoes at a very high price like $2000. However, if the price is below $750, he is likely to get more orders of up to $15,000. But the brand manufactures just 1000 shoes each month such that it gets the same amount of orders each month and sells the inventory completely.
Another example is when potato production increases, the farmers reduce the price so that they can sell it fast. However, if the supply is very high compared to the demand it will impact the equilibrium. For instance, if the potatoes are more than the requirement of the public, the yield will get wasted, and farmers will lose their cost of production.
The above examples portray very basic free-market economics concepts that help determine the exact price of a good or service. For instance, a new venture wishes to launch a new product in the market and wants to look for the best price for its manufacture. The product will cost $150 to the company, while the production capacity is 6,000 units. The venture surveyed to gauge the product demand at different prices, and calculated the revenues.
The above graph illustrated that the demand will reduce when the price increases.
Opportunity Costs
Have you heard about opportunity cost? As the resources are scarce, we have to make a choice. It means forgoing a value of something when you chose the next highest-valued alternative. For instance, you have 24 hours a day, so you have to choose the best activities to get the most output from them. Like, if you spend two hours studying, you cannot spend the same time watching your favorite TV show. So, you need to make a choice that best matches your goals. The opportunity cost when you chose to study will be the time you sacrifice for your leisure.
Another example is that Ben has $30,000, he can either invest in fixed deposits or establish a new venture. The opportunity cost when he chooses a fixed deposit is the profit he will earn from his new venture. The opportunity cost when he opts for establishing a new venture will be the interest amount on the deposit.
Sunk Cost
A sunk cost is an irrecoverable cost, invested by a business as capital. It is referred to as the past cost spent by the organization and is not included in the forthcoming business decisions. Hence, the sunk cost remains fixed when making new business decisions. So, the company does not consider it.
For instance, a company manufactures sports equipment such as football, bat, tennis balls, basketballs, and badminton. Let’s consider one product i.e. football. The company manufactures a football for $70 and sells it for $150. This is the cost of a simple design football. However, if the company has to manufacture premium footballs an additional cost of $30 will be incurred.
So, the decision about manufacturing premium footballs is the extra $30 cost required to make it. Yet, the company will not take into account the manufacturing unit or warehouse storage. The reason is that the company has already invested in these things. So, these are regarded as sunk costs and are not considered in the company’s decision to manufacture the premium range or not.
The Trade Battle
Every country tried to safeguard its economy, local industry, and businesses. As the local industry generates jobs, they would like to safeguard the interest of the nation’s companies. Therefore, when goods are traded from different parts of the world, the nations levy higher taxes and tariffs. Through this, the nation strikes back with even higher tariffs. So, it leads to a conflict condition generally regarded as a trade war.
The ideal example is the present trade war between the US and China, where the US introduced a higher tariff on its imported items from China. As a result, China reacted by demanding similar tariffs on US goods. As both are huge economies of the globe, they don’t influence their nations but impact global trade and the global economy. These seem basic economic concepts, but you might find them difficult to solve. In this case, you may get in touch with Online Help with Economics Homework.
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