...Making Economic Decisions Econ/212 Making Economic Decisions Individuals make decisions based on three principles. To understand the decision-making principles individuals must first realize that people have limited resources and unlimited wants. Because individuals face scarcity, the first economic principle is that people are rational. The principle of rationality means, “Individuals and firms use all information available to making decisions” (Hubbard & O'Brien, 2010). The second principle of decision-making is that people respond to incentives. This means that people are more likely to make a certain choice if they will receive a benefit from making the choice. Last, most decisions are made at the margin. This means that most decisions are not all or nothing, but rather involve doing more on one thing and less of another. When making the decision to return to school to attain a bachelor’s degree, the marginal benefits and the marginal cost of the decision has to be considered before the final decision could be made. The marginal benefits of returning to schools were the additional income that I would be able to receive from the higher degree, the satisfaction that I would receive from achieving a degree, and the ability to find a job that used more accounting skills. The marginal cost of the decision to return to schools were the decrease in income that I would face by having less time to work, the stress of returning to school and juggling other responsibilities...
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...Decision Making in Economic Issues Economics is all about how to manage the limited resources in the society. Resources are scarce; if there could be unlimited resources then there could not be economics issues. So, the study of how society manages their scarce resources is Economics. In other word, the essence of economics is to acknowledge the reality of scarcity and then figure out how to organize society in a way that produces the most efficient use of resources. People need to take right decision in right time. So, how people make economic decisions regarding their buying goods or services at the market, are ruled by four basic principles. They are: 1. People face tradeoffs All decisions involve tradeoffs. Examples: * Going to a party the night before your midterm leaves less time for studying. * Having more money to buy stuff requires working longer hours, which leaves less time for leisure. * Protecting the environment requires resources that could otherwise be used to produce consumer goods. 2. The cost of something is what you give up to get it. * The opportunity cost of any item is whatever must be given up to obtain it (the biggest cost of one of your alternative options). * Making decisions requires comparing the costs and benefits of alternative choices. * It is the relevant cost for decision making. 3. Rational People think at the margin Systematically and purposefully they can do the best to achieve their objectives. The Rational...
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...Economic Decision Making Eco/ 212 July 4, 2010 This paper will list and review the four principles of individual decision making. The listed principles are necessary tools each consumer needs in order to make the best informed decision one can regarding his or her needs. Today’s consumers are faced with a constant barrage of financial decisions that today’s economy requires we make. Most consumers today are true economist whether they know it or not. Although many may not realize it, we all make decisions based on the four principles of economics which are: the cost, the incentive, the trade-off, and the margin. Economics is the study of how a society manages the scarce resources it has. When a consumer decides to make a purchase the first principle comes into play, how much will the item cost. The second principle, at least for me, becomes what are the incentives to make the purchase. The third principle for economic decision making is what would be the trade-off for the purchase. A consumer would now begin to question what item or goal would have to be given up or set aside to gain this particular item or goal. The fourth principle is known as the margin. The benefit of an item (marginal benefit) should carry more weight than the cost of an item (marginal cost). Because the benefits should outweigh the cost, this would give the consumer the final margin. Do keep in mind opportunity as well as price, availability, upkeep, re-sale value, and the potential...
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...Economics Decision-Making Process Name Institution Economics Decision- Making Process According to (Anderson & Sweeney, 2000) managers and economists use the decision-making process to analyze economic models. Decision-making process involves selection of the best alternative from many choices. It involves setting goals to make decisions, assessing alternative occupations and gathering information. When analyzing economic models, managers and economists note that there are fundamental assumptions that every model relies on to remain valid. These assumptions are present in all decision circumstances. Everyone in the society, from the small business owner to the billionaire investing in the real estate to the teenager applying a job makes some economic decisions at some point. The basic assumptions are surrounding decision-making process always apply. The primary factors surrounding economic decision making include; maximizing value, working on a budget, cost benefits analysis and rational decision making. The process of making economic decisions is complex as that of consumer decision making. When making decisions, businesses derive most of the critical choices from macroeconomics data, any of the choice made could mean the failure or success of their enterprise. The accuracy, reliability and validity of the information the business uses are of great importance (Tremmel, 2008). My aim in this paper, therefore, is to discuss and identify any decision-making processes...
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...Economic Decision Making Renice Taylor ECO/212 Monday, February 14, 2011 Anusuya Chatterjee Economic Decision Making Today, every individual must make a decision in his or her lifetime. However, every individual does not make decisions in the same manner. In economics, there are four major principles of decision-making: “people face trade-offs”, “the cost of something is what you give up to get it”, “rational people think at the margin”, and “people respond to incentives” (Ten Principles, n.d., pgs. 4-7). “People face trade-offs” is simply the concept of giving up one thing that we like for another. “The cost of something is what you give up to get it” means that cost will always be a factor. However, it should not be the only one. “Rational people think at the margin” refers to individuals thinking in shades of gray. “People respond to incentives” deals with the majority of middle-class citizens. Many individuals will hold on to their money until a sale comes along. Recently, my husband and I were in the process of deciding whether to lease a new sports utility vehicle or finance an older one. The benefits of leasing will be driving a new vehicle. There are no worries of damage done with the previous owner, accidents, etc. However, after looking at the marginal costs...
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...How People Make Economic Decisions Paper Eco/212 September 28, 2010 Making Economic Decisions Economic decisions made by individuals can affect the economy. The principles of individual decision-making include people being rational, economic incentives, and optimal decisions made at the margin. Trading the three economic systems are market economy, centrally planned economy, and mixed economy. Each contains their own attributes on how they contribute to an economy. The current economic system in the United States is a mixed economy. Individual Decision-making People try to be rational. “It means that economists assume that consumers and firms use all available information as they act to achieve their goals. Rational individuals weigh the benefits and costs of each action, and they choose an action only if the benefits outweigh the costs” (Hubbard, & O'Brien, 2010). Economic incentives are motives human beings act upon. This generally can mean people take the cheapest route that benefits them the most. Human beings have to answer the question, “Is there enough incentive or motive to make this decision?” Optimal decisions are made at the margin. These decisions are all or nothing. Within one of these decisions can be marginal benefit and marginal cost. An optimal decision that I made to compare marginal benefit versus marginal cost would be when I decided to trade in the truck I loved so much for a car. The marginal benefit of trading the truck in was buying...
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...How Economic Decisions Are Made Penelope Carter ECO 212 April 2, 2012 David Smith How Economic Decisions Are Made If 10 people with 10 different occupations are asked to define economics, one would receive 10 different answers because the concept of economics confuses people. “Economics is the study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce resources,” (Hubbard & O’Brien, 2010, p. 4). Oftentimes, people do not realize how many economic decisions they regularly make. People make daily economic decisions by comparing marginal benefits and marginal costs in conjunction with their current economic market system. Marginal Benefit and Marginal Cost I can recall several situations in which I had to make a decision by comparing the marginal benefit with the marginal cost. In economics, the word marginal means “extra” or “additional;” therefore, an “additional benefit” of something a person wants usually comes with an “additional cost” or consequence of acquiring it, (Hubbard & O’Brien, 2010, p. 6). The first car I owned was a 1987 Ford Taurus I purchased for less than 1000 dollars in 2003. It worked just fine for about a month and gradually parts started breaking. After a year of ownership, I realized I had spent twice as much as it cost to buy it in repairs. I had to decide if the marginal benefit of buying a new car and no longer pouring cash into fixing my old car was worth the marginal cost of...
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...How People Make Economic Decisions Teresa Baray Eco 212 January 17, 2011 Randy M Weinerman All adults must make choices to attain their specific goals. We have many wants but the resources have limits. Individual decision-making involves making choices on how to use their limited income on various goods and/or services available to them. People also make decisions about how they will spend their free time. Many outside entities can persuade an individual to use their resources including advertisements, coupons or incentives such as ‘buy one, get one free” or saving a certain percentage if you shop on a certain day and time. People must make decisions everyday nearly on everything. As stated in our textbook there are three key economic ideas: 1. People are rational, 2. People respond to economic incentives and the final idea being that optimal decisions are made at the margin. One of the major decisions where I compared the marginal benefits and the marginal costs was the time I decided to move in with a family member. I wanted to save some money to have a down payment to purchase a home. There were more than one marginal benefit and costs but the one I will focus most on is the cost of living further from work, but the benefit being not having to pay rent. In this circumstance I added an hour each way to my drive time everyday to work and a lot of additional money would be spent on gas. The best part was I was cutting my rental expenses by almost 70% but the not good part...
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...Running head: HOW PEPOLE MAKE ECONOMIC DECISIONS How People Make Economic Decisions How People Make Economic Decisions Decisions that we made as individuals affect economic performance and possibility of growth. Individuals lead the global economy by increase or decree the demand on services and products, develop the productions of products and services methods. In the other side entrepreneurs made decisions that affect Important decisions are made by entrepreneurs who establish and run all kinds of businesses. Entrepreneurs make decisions about financing and marketing the products and services. With those decisions manufactories and business will be able to produce better products become creative in providing services. Individuals make economical decisions based on four principles. First principle is people face trade-offs and we can define it as we can't get anything unless we give another thing. Most people dose tradeoff without knowing that they are acting in economic methods for an example they would trade a service with money or they might trade service with time and so on. Second principle is the cost of something is what you give up to get it. With this statement we understand there is nothing free in this world and to gain a product or service we need to bay back to have it. We need to study and analyze our requirements and the coast we are going to give and if we are capable to do so. Third principle is rational people think at the margin and mostly we...
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...How People Make Economic Decisions To understand how people make economic decisions, first, will need to acknowledge the word economic. Therefore, according to the Dictionary.com “the economic is pertaining to the production, distribution, and use of income, wealth, and commodities.” The four principles of individual decisions-making, according to Mankiw (n. d.) are the following: 1. Trade-off - making decisions: a) Efficiency – obtaining the most from resources. b) Equity – distributing economic prosperity among members of society. 2. Cost - cost of benefits and actions: Opportunity cost – whatever given up to obtain some item. 3. Thinking - analyze the marginal (small incremental adjustments to a plan of action) benefits and cost changes and how it will be affect by decisions. In another words; the effect of decisions taken. 4. Incentives – something that induce a person to act (like a reward) as a motivation. Developing the decision of returning or coming back to school to complete a degree is a genuine example of an individual decision-making and which needed to compare the marginal costs and benefits of this decision. After analyzing this decision, needed to compare: A) Marginal Costs – had to gather information on current college costs. Creating a saving account to pay all expenses without been expose (after complete the degree requirements) to limited financial credit because of study loans amount. B) Marginal Benefits – completing this degree will allow...
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...How People Make Economic Decisions Charea Smith ECO 212 November 21, 2010 Les Hurley There are three ways people make economic decisions. First there are those that make these decisions rationally or face the tradeoff. They weigh the benefits against the cost. What is being gained as opposed to what is being given up. An example would be the cost of buying a new vacuum from Wal-Mart or Sears. Which one will give the most benefit for the price? The second way people make economic decisions is by responding to economic incentives. Most everyone will respond to a deal. The benefit outweighs the cost. If you can buy a new car five thousand dollars off the manufactures suggested retail price you will most likely go for this deal. Most of society looks for the incentives before they buy. The third way people make economic decisions is at the margin. The marginal cost is what is lost or not obtained through making a particular decision. Marginal benefits are what is gained from making that same decision. This decision is made weighing the pros and cons. According to Investopedia (n.d.) the marginal benefit indicates, in dollar terms, what the consumer is willing to pay to acquire one more unit of the good. (Consumer Choice, para. 2). I can remember buying shoes at one of those outlet stores. I had a budget of one hundred fifty dollars. I wanted to get some really good shoes that could be worn to work. I am a firm believer that the more expensive the shoe the longer they...
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...In week four, the innovative firm, Quasar, is introduced in the market structures simulation. Quasar is leading the way in the computer industry with the design and manufacturing of an all optical notebook computer. Through the market structures simulation, examples on how decision-making differ among the market structures of monopoly, oligopoly, monopolistic competition, and perfect competition. This simulation and the real-life scenarios detailed within, provide insight and understanding to the intricate decisions that are made in each type of market structure and the impact of those decisions. In the Quasar simulation, the C.E.O. utilized pricing as tool for optimizing profits, and with the input from the board of advisors decided to allocate funds to advertising, technology, and other ventures. (University of Phoenix, 2008) Through the course of this paper, a solution will be created using strategic variables, in order to sustain the economic profits that the firm can earn. This paper will also look to identify pricing and non-pricing strategies that will further facilitate the goal of maintaining economic profits. Finally, this paper will ascertain what kind of innovations will best prolong Quasar’s distinctiveness. In 2003, Quasar launched the world’s first all optical notebook computer branded Neutron. Because of Neutron’s processor, memory use and high-speed optical conductors, Neutron boasts approximately 5 times the speed of existing microchip-based computers. Neutron...
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...To understand the U.S. economy structure, one must be familiar with how households, business and government interact with each other, as well as understand four economic variables: gross domestic product (GDP), inflation rate, unemployment rate, and interest rate. The U.S. economy is composed of three major institutions: households, business and government. Americans makes economic decisions everyday, whether they are aware of it or not. Households, business and government economics are intertwined in the U.S. economic systems. Whatever one these economic institution does, affects another. Although the power of households financial and economic decisions might be seen as minimal compared to those of major business, households play a large part of the economy. Households control supply and demand of goods and services in a very specific way form businesses and from the government. When households demands a service, business create services that meet the household’s needs. When households and business begin to interact in an economic manner, the government also becomes a part of the interaction (Colander, 2010). A simple example we can use on how households, business and government interact in an economy is airlines and airports. It first starts with the consumer having the need to travel from point “A” to point “B” (or from a country to another country); the consumer needs becomes a business idea, hence airlines and airports. Then airlines and airports need government...
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...How People Make Economic Decisions Erik Hofemeister Eco/212 01/14/2012 Zachary Smith In economics, there are four principles of individual decision-making. These principles confront people from all walks of life, regardless of wealth and status. They are known as individuals confronting trade-offs, the expense of something is what you surrender to obtain it, intellectual individuals think at the margin, and individuals react to incentives. Individuals are confronted with these principles on a daily basis, especially in the world of business. The principle of making trade-offs consists of an individual surrendering one resource in order to obtain another. These resources are for the most part time, money, and energy. For example, when one considers taking a new job, he or she must determine if the higher wage given is worth sacrificing the convenience of having paid federal holidays; an incentive that may only be offered by the current employer. The second principle tends to coincide with the first, meaning that whatever choice an individual makes, a sacrifice will be made. This is evident when one makes a purchase considering that hard earned money is surrendered in exchange for a flat screen television. The third principle, intellectual individuals think at the margin, states that those who think rationally will only make a transaction in which the marginal benefits outweigh the marginal cost. The last principle, individuals react to incentives, simply states that...
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...How People Make Economic Decisions People select different alternatives in order to achieve their objectives. They choose one way or another because of scarce resources. This means that individuals may have lots of wants or needs, but they are limited by the available resources; be them money, time or several other. In this paper I will list three economic ideas associated to individual choices, present two cases of decision-making in which I shall compare the marginal benefits and the marginal costs related with the decision, show what incentives could guide to take a different path, and explain how the principles of economics affect decision-making, interaction, and the gear of the economy as an overall. Individual Decisions R. Glenn Hubbard and Anthony Patrick O’Brien (2010) teaches that “economics is the study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce resources” (pg.4, para 3). Previous citation can translate as: I have only an hour time and I need to choose if to finish my economics paper, or watch my favorite show. Another individual decision example may be when a business has to decide if to produce 5,000 more electric batteries for cars, in the middle of the year, or to stay with the 50,000 production number that was the first decision in the beginning of the year. There are three main economic ideas related to individual choices: “people are rational, people respond to incentives, and optimal...
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