Real World Application of Microeconomics Principles
It is important to comprehend that microeconomics utilizes particular principles to explain the way people as well as businesses make decisions. Notably, one of the fundamental precepts of microeconomics is that people make decisions to optimize their satisfaction, and this is called maximizing utility. On the same note, another precept that comes into play as clients make decisions is the principle of opportunity cost. In this case, when people make a decision, they also calculate the cost of forgoing the next best option. Additionally, diminishing marginal utility is another vital microeconomics principle that plays a vital role in describing the general consumer experience that the more one consumes of something the lower the satisfaction he or she gets.
Demand and supply is a well recognized real world microeconomics principle that is applied in the modern globe. To begin with, market demand is defined as the total demand for the available goods and services. On the other hand, market supply is the total amount of particular goods and services prevalent in the market to customers. Therefore, the interplay of supply as well as demand plays a vital role in helping find prices for a certain service or product with higher demand as well as limited supply making for high prices. With that said, the objective of this microeconomic study is to determine a real world application of microeconomics principles and its influence on people’s lives. Simply put, the available microeconomics principles have a considerable impact on the way people budget for their financial resources. It is evident that the prevalent microeconomic policies are vital for individuals to live good lives as per the available resources. Don't use plagiarised sources.Get your custom essay just from $11/page
Opportunity cost is one of the policies that are applied in real life instances. For instance, investors face opportunity costs when investing in one of the exchange trade funds that businesses offer as compared to a regular savings account. For example, in case one has cash to invest and he or she has narrowed his or her choices to two possible investments. The main idea is that if an individual has two options, namely A and B, the opportunity cost of doing A is the value one would attain from having done B as measured by B’s definition of value. Another real world example is on a Friday night a business person trades 3 hours of partying or catching up with friends time for 3 hours in the office (Thangavelu, 2018). In this case, the opportunity cost is the value attained from those events he or she missed. The value can be quantified in happiness units or enjoyment units. In the real world, people do not apply the idea of opportunity cost to the real globe because they tend to utilize subjective measurements such as happiness units. Therefore, people quantify time as well as money objectively.
On the same note, the principle of opportunity cost can be used in education sector. For instance, to define the costs of a college education, a learner would probably include costs, such as expenses of books, tuition, and accommodation. The aforementioned expenses are good examples of accounting costs of college but they do not offer an all-inclusive list of costs. In this case, a considerable number of opportunity costs have been ignores (Lynn, 2018). For example, wages that could have been earned during the duration used attending classes. Similarly, the value of four years’ job experience given up to go to school as well as the value of items that could have bought with the tuition money, to mention a few.
It is important to understand that utilizing many case study instances people are in a position to depict the way opportunity costs can be mapped as part of quantification of cost assessment. Specifically, the opportunity cost mapping plays a vital role in dealing with monetary estimates of opportunity cost that is spatially extrapolated to various landscapes (Barton et al., 2013). It is noteworthy that opportunity cost evaluation has considerable practical business applications because the principle exists as long as resource scarcity exists. Therefore, the value of the next best alternative should be regarded when selecting among production possibilities, computing the capital cost, evaluating comparative benefits, as well as selecting the type of product to purchase or the way to spend time.
Overall, it is evident that microeconomics utilizes particular principles to explain the way people as well as businesses make decisions. The paper at hand uses opportunity cost to demonstrate the way microeconomics principles are applied in real world. Specifically, the precept of opportunity cost plays a vital role in making excellent decisions in different life experiences. It is noteworthy that the aforementioned principle comes into play as clients make decisions on an opportunity cost. In simple terms, many case study instances people are in a position to depict the way opportunity costs can be mapped as part of quantification of cost assessment. Specifically, the opportunity cost mapping plays a vital role in dealing with monetary estimates of opportunity cost that is spatially extrapolated to various landscapes.
References
Barton, D. N., Bernasconi, P., Blumentrath, S., Brouwer, R., Oosterhuis, F., Pinto, R., & Tobar, D. (2013). Guidelines for opportunity cost evaluation of conservation policy instruments. POLICYMIX Technical Brief, (11).
Lynn, A. (2018). Applied Opportunity Cost. Asian Efficiency. Retrieved from http://www.asianefficiency.com/mindsets/applied-opportunity-cost/
Thangavelu, P. (2018). How microeconomics affect everyday life. Investopedia. Retrieved from https://www.investopedia.com/articles/personal-finance/032615/how-microeconomics-affects-everyday-life.asp