Question

Five principles of economics that are applicable to individual economic decision making. Please give an example from your life where you recently applied any two of the five principles.

Answer 1

The five principles of economics that are applicable to individual decision making are - a) opportunity cost principle, b) equi-marginal principle, c) diminishing return principle, d) the spill-over principle, e) the reality principle.

The opportunity cost principle is that in economics everything has cost and not only monetary. When some one is sacrificing anything to get one of the alternative then other alternative is the cost for the person. Equi-marginal principle is in economics we try to analyse one thing or take decision on the basis of marginal cost and benefit of one service. Diminishing return principle is that a factor has diminishing return if we use that factor continuously. We take lot of decision on the diminishing return. The spill over effect when ever we take any decision it has effect on other also. If we produce new thing then not only the producer will gain but also the consumer will get benefit from new thing. The reality principle is what ever economic service a person want to get that must be backed by purchasing power or income.

Recently in real life is I have applied opportunity cost principle because I have left one job in a company (Company Ford car) and I choose to do my job in another company then the earning opportunity in ford I sacrificed. I use this principle because later company is more suitable to me.

I have spill over principle because I took a decision on medical insurance policy and I brought a new idea to family which is not only helping me but also my family and other members also.