Question

What are 3 examples (topics) in economics can be applied to real life? Explain

Answer 1

There are many topics of economics that can be applied to real life from game theory to opportunity cost.

Some of them are as follows

The most common is the opportunity cost

Opportunity cost is the cost of forgoing the next best opportunity for the present one. As we know we have scarce resources and unlimited needs , so we need to allocate resources in the most productive ways.

Eg: going to college or searching for a job.

If an individual decides to go to college, then he is forgoing the next best opportunity of searching job and earning money.

On the other hand, if the individual decides to work , then he is forgoing the opportunity costs of going to college and leaving the future prospects of landing at a higher wage job.

The next most commonly used economic term applied in real life is Externalities

Externalities are the external costs or benefits incurred by the third party for which it is not compensated due to the transaction between two parties.

Externalities could be negative or positive like we see in our daily life.

Eg: vaccination is a type of positive externality

If the community one lives in has better sanitation facilities and the individuals there are concerned about their health and hygiene and keep the environment clean, then not only do they help to keep themselves away from diseases but also the people around them who are not vaccinated because they prevent the occurrence of the disease . So for th people who haven't had the vaccination , it is a benefit for which they aren't paying.

Third could be the law of diminishing marginal utility which is again a common concept each of us comes across everyday.

Suppose that an individual is hungry. Going by this fact , when he consumes the first slice of pizza , his utility is maximum . Then as the individual goes on to consume more and more slices of pizza, his hunger reduces and so does his marginal utility, and after a certain point , there exists a level when he is overeating and may fall sick and his marginal utility is negative.

There are numerous cases in economics which we come across in real life and these are just a few of them.

Sunk costs , law of diminishing returns, cost benefit analysis tragedy of commons etc are also common in our everyday life.

(You can comment for doubts)