Three Economic Concepts That Apply to Daily Life - Essay Example

Application of Economic Concepts Supply and Demand The term demand is used to refer to willingness and the ability of an individual to buy a particular good or service at a particular price, this means that an individual is recognized to demand a good or service only when he/she has the money as well as the will to purchase a particular good or service (Arnold, 2010, p.66). For example: I have $500 to purchase an iPhone and even have the willingness to do so at a particular price. The term supply is used to reflect a manufacturer’s willingness and the ability to sell his/her goods and services at a particular price, an individual would not be regarded as a supplier if he is not willing to sell goods and services at a particular price (Arnold, 2010, p.67). For example: If the Apple Company does not wish to sell their iPhone for $500, they cannot be regarded as suppliers as they are not agreeing to sell at a particular price.

Market efficiency The concept of market efficiency is used to refer to a situation when the total number of inputs of resources leads to the achievement of maximum number of outputs (McEachern, 2013, p.185). For an individual market efficiency is a mere perception of satisfaction. An individual is said to experience market efficiency when he/she perceives that the price he/she has paid to purchase a particular good or service is equal to the worth of the good or service. For example: I pay $1 to purchase toothpaste, I may experience market efficiency if the toothpaste produces the desired result which for me is providing clean teeth.

If the toothpaste fails to provide me with clean teeth, I may not be satisfied and I may experience market inefficiency as I may not feel that the money I paid to purchase the product was of equal worth of the product. On the other hand, if the toothpaste conforms to the purpose for which it was purchased, I may experience market efficiency. Consumer Surplus Consumer surplus is a condition experienced by consumers when they end up paying lesser than the maximum price they were willing to pay (Johansson, 1991, p.42). This means that when consumers are willing to pay a higher price for a good or service but due to certain reasons such as discounts they end up paying less than they were actually ready to pay for a good or service, they end up experiencing consumer surplus.

For example: I was willing to pay $500 for iPhone, but due to Christmas discounts, I only paid a price of $300 for the same phone, this means that I have experienced a consumer surplus. Consumer surplus is the difference between the amounts they end up paying and the maximum amount they were actually willing to pay. In the example of iPhone, I experience a consumer surplus of $200 since I paid $200 less for the same phone for which I had the willingness to pay a total amount of $500. References Arnold, R. A. (2010).

Macroeconomics (9th ed.). Mason, OH: Cengage Learning, South Western. Johansson, P. (1991). An introduction to modern welfare economics. Cambridge: Cambridge University Press. McEachern, W. A. (2013). Contemporary economics (3 e. ed.). Mason, Ohio: South-Western Cengage Learning.