Applying economics in everyday life

Microeconomics and macroeconomics the study of the larger aggregate economy together make up the two main branches of economics. So how do the principles of microeconomics affect everyday life? Most people have a limited amount of time and money.

Applying economics in everyday life

Keep this field blank Registered users can save articles to their personal articles list. Login here or sign up here Soapbox Applying economics to your daily life A firm grip of the subject gives an individual a big advantage both in business and personal life.

Applying economics in everyday life

Economics studies the way people and companies interact with each other, and covers such diverse fields as finance, law, education, business, government policy and more. Having a firm grip of these subjects gives the individual a big advantage both in business and personal life.

To illustrate this, here is an examination of how the economic principle of opportunity cost can save you money, time and effort.

Economics Defined

What is opportunity cost? The formal definition of opportunity cost is the cost of the next-best choice available for someone who has picked one of several competing options.

In other words, when choosing one of two options, the opportunity cost is the value that the person would have gotten if they chose the other one. For example, a person who has R has two choices: If she buys the book, the opportunity cost in other words, the value that she has missed out on is the interest she could have gotten on the money.

Conversely, if she chose to save the money, the opportunity cost would be the book itself. How does it work? When you make a choice, ask yourself what effect the next-best possible option could have had on you.

Then calculate the difference between the option you chose and the one you did not to see whether you made the right decision. Imagine that you are working a full-time job and earning R, per year.

Even though this is more than your yearly salary, an opportunity cost analysis shows that keeping the job will mean earnings of R, over the two years, R, more than starting the business. However, expanding the analysis over three years shows that both opportunities equal out at R, eachand by the fourth year, the new business becomes the better choice.

Doing an analysis like this helps you make real-life decisions. Do you have the time to wait for your business to become profitable, or should you stick with the job and hope for a raise? Being able to work out the economic benefits of both options puts the power in your hands.

What are the practical implications? Calculating opportunity cost can be extremely useful when evaluating two competing choices. Should you keep your job to start your own business?

Should you take time to earn a higher qualification or should you enter the job market instead? Is it better to invest your savings in the bank or to buy property instead?

One man's attempt to understand human action through the economic point(s) of view

Opportunity cost need not relate only to monetary matters: Is it worth starting your own business and working long hours, or do you prefer to keep your job and spend more time with your family?

Knowing the principle of opportunity cost lets you make empowered, rational and beneficial decisions in all aspects of your life.In economics, supply is the amount of stuff producers in the economy make available for sale and demand is the extent to which consumers want to buy those goods.

Supply and demand influence all the prices in the economy: abundant resources and products tend to be cheaper, while scarce resources and products are more expensive. To help understand how microeconomics affects everyday life, let’s study the process of renting an apartment.

In a city like New York, there is a limited supply of housing and high demand. May 12,  · In an introductory course, a professor found that requiring students to ask everyday questions was an effective way to teach economics concepts.

Supply & Demand. We often think of supply and demand as limited to commodities which are bought and sold, but the truth is that our everyday decision making is greatly influenced by supply and demand. Original Question: What are some applications of economic theory in everyday life?

The theory of marginal utility comes to mind. Wiki: Marginal utility theory examines the increase in satisfaction consumers gain from consuming an extra unit of a good.

Economics may seem like a theoretical subject, but it actually has many practical applications in daily life. Economics studies the way people and companies interact with each other, and covers.

Applying economics in everyday life