Gone are the days when you just use to go out and shop with very little knowledge of what you are having, we use to have our faith on the salesperson but now, now there is a significant shift in our course of actions.
Modern customers know that the person guiding them about a particular product is getting paid to do what he does, he has to sell their product no matter what and here where people start to question that whether the product is worth buying?
Customers now are more familiar with their power than before and like to know about the dynamics of the product even without leaving home. Several reviews are there on the websites to help the people to make better judgments.
Following are the three concepts that I believe every consumer must be aware of for better economic understanding.
As a human our needs are endless, one day we may be crying over no food at all, but another day when we have bread we would ask for eggs. The next day we would have eggs and bread, but we would find the milk missing, and this will continue until our own end. The list is never-ending, you may think it would end but it would not, that is how we human work.
The gap between our limited resources and our endless wants is known to be scarcity. Scarcity requires people to list down their needs and wants separately and then to figure out how to satisfy their needs first and only then their wants. British economist Lionel Robbins defined scarcity as
Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
There is nothing free in this world. Take breathing as an example, we take breathing as free of cost but give it a good thought. We breathe in this air of industrial revolution with so many poisonous gases all around. These gases expose us to so many diseases that make us end up in a hospital bed, and we all are familiar with the bills that are charged by hospitals. So we end up paying for breathing too. Now as we understand that air is not free also, the government has another thing to invest into with the limited money to invest in. Here is where the government has to decide which thing should be given preference regarding investment.
DEMAND AND SUPPLY
The market works with this phenomena; demand and supply is the key to be found, and you have a properly functioning system to yourself. But make no mistake, a constant check and evaluation is a must.
What happens is manufacturers determine what their products’ demand is and then only they could know how much supply is needed. And the slight shift in the change of the supply can make a drastic difference to your product.
For instance, if you are the monopoly in rice manufacturing or as a group all you rice manufacturers decide to supply lesser rice for a period this will make your price boom in days as people will sense scarcity. But if one of you sells there product with the same or cheaper price than the traffic of customers from rest of the companies will flow your way hence, more demand for you more supply for them.
As shown in the figure, the increase in demand increases the supply and price and the decrease in demand decrease the supply and price
Marginal utility is one of the core concepts in economics because it helps the economist to determine the demand people have and supply producers have to make. The negative marginal utility is when the consumption of a product decreases, and the positive marginal utility is when the consumption of a product is increased.
This concept helps the economists to determine what things and ways people get happy and satisfied and how that affects their decisions for buying any commodity.
Economists also came up with the law of diminishing marginal utility. This phenomenon claims that the first unit of a product holds more utility for the consumer than the second one, like, when we feel thirsty and have a glass of water, we feel satisfied, the next unit of consumption gives us satisfaction but not as the first unit did. And if we keep on drinking, the pleasure will only turn into displeasure.
Economists’ claims that every individual wants to reach the highest level of satisfaction to get the total utility to make their purchase worth it but total utility differ from product to product and person to person.
For instance, maybe a shampoo brand is perfect for me, it makes my hair look good, but when I bought it for my daughter, she ended up with frizzy hair all day. Here I may love that brand but she did not. This is how different our demands can be.
Author Bio: Sarah Smith has been a personal finance author for the last five years. She is also an independent and very passionate finance and investment advisor. She regularly posts at www.personalincome.org.