Running Head: Economical Choices in Society

Economical Choices in Society
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Economical Choices in Society In finances there are a few values that people use while making personal choices, including: 1. “People face tradeoffs. Meaning to acquire one thing we like, we usually have to give up another.” (Mankiw, 2008). 2. “The cost of something is what you give up to get it. This principle involves comparing the cost and benefits of alternative courses of action. In many cases, the cost of some action is not as obvious as it might seem.” (Mankiw, 2008). 3. “Rational people think at margin. Rational people systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have. Economists use the word marginal changes to describe small incremental adjustments to an existing plan of action. Margin means edge. Rational people often make decisions by comparing marginal benefits and marginal costs.” (Mankiw, 2008). 4. “People respond to incentives. An incentive is something that induces a person to act. Because rational people make decisions by comparing costs and benefits, they respond to incentives.” (Mankiw, 2008). I recently considered purchasing a cat. I took into consideration the marginal costs and marginal benefits before purchasing this cat. The marginal benefit is the cat would free up about 15 weekly work hours, which equals $330. This time is usually spent entertaining the family however; the cat could entertain them from now on. The marginal costs are: a pet deposit of $150, weekly cat litter $1, weekly food supply $5, a onetime shot fee $150, and toys $20, which equals about $326. So I will continue to receive the benefit of saving 15 hours and only pay $6 a week for cat supplies. As you can see the marginal benefit is greater the marginal cost. So buying