How is economics applied in our everyday life?

Everyone knows that economics is an important science that builds fundamental steps for countries and nations to grow, but did you know that we can encounter economics in our everyday lives? Here are several ways economics plays a role, along with examples:

1. Resource Allocation: Every day, we decide how to allocate our limited resources, like time and money. This is essentially a budgeting exercise, an application of the economic principle of scarcity.

   - Example: Choosing to cook at home to save money instead of eating out.

2. Opportunity Cost: When we make choices, we face the concept of opportunity cost, which is the next best alternative foregone.

   - Example: If you spend an evening watching a movie, the opportunity cost might be the time you could have spent exercising or studying.

3. Supply and Demand: The market prices of goods and services we buy are determined by supply and demand.

   - Example: During peak travel seasons, the prices for flights and hotels increase due to higher demand.

4. Cost-Benefit Analysis: We unconsciously perform cost-benefit analyses when we weigh the costs and benefits of our actions to make decisions that will maximize our satisfaction.

   - Example: Deciding whether the enjoyment from buying a new smartphone outweighs the financial cost.

5. Incentives: Economic incentives can shape our behaviour, as we tend to pursue actions that offer greater rewards.

   - Example: Shopping during sales or using coupons to get more value for money.

6. Marginal Thinking: When making decisions, we often consider the additional or marginal benefit of consuming one more unit of a good or service.

   - Example: Deciding whether the pleasure from an extra scoop of ice cream is worth the additional cost and calories.

7. Risk and Uncertainty: We constantly assess risks and potential uncertainties in our decisions, which is a fundamental concept in economics.

   - Example: Purchasing insurance to mitigate financial risk from unexpected events like accidents or health issues.

8. Investment and Savings: Decisions about saving and investing money are influenced by interest rates, inflation, and future needs—all economic considerations.

   - Example: Contributing to a retirement fund now for financial security later in life.

9. Comparative Advantage: This principle involves choosing jobs or tasks that we are relatively more efficient at performing.

   - Example: A graphic designer might choose to specialize in design work rather than managing finances and hire an accountant instead.

10. Market Competition and Consumer Choice: We benefit from competition in markets that provide us with various choices and can drive prices down.

    - Example: Comparing different brands and prices for the same product to get the best deal.

Applying economics in everyday life illustrates how deeply it is woven into our daily decision-making. It provides a framework for understanding how we allocate limited resources like time and money, weighing the costs and benefits to maximize personal satisfaction. It also reveals the rationality behind our choices as we consider opportunity costs and the additional value of one more consumption unit. Furthermore, economics underscores the interconnectedness of personal choices with broader market dynamics, such as supply and demand, which influence the prices of goods and services we use daily. In short, economics is integral to our routine choices, from budgeting to investing and purchasing to planning for the future.

Written by Zhangir Zhangaskin | Proofread by Yasmin Uzykanova