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Interviewing Management

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a)How people make decision
Lesson 4 : People Respond to Incentives

People's behaviour towards decision making may change due to the direct comparison in cost changes and their benefits.Because of scarce resources,people often make decision between several choices to get the things that they wanted.The choices that they make are based on the criterion that could give them the most benefits,satisfaction and also which they can afford or willing to.The decision that they make will eventually lead to an opportunity cost.Opportunity cost is something that has to be given up to obtain an item which can also be considered as the second best item or option.(Mankiw,2004)

Therefore, the behavior of buyers and sellers in the market will be affected by the changes of the price of an item.(Mankiw,2004)According to the article,(The Star,Ngo 2012)the prices of flower will increase by 10% from March 16 according to the Cameron Highlands Floriculturists Association.The reason for the increase in flower price is because of the rising cost of materials and labours.Materials and labours areessential in the production process.If the prices of the flowers remain the same,they will face loss as the profits that they earn is not enough to cover the cost of inputs.Indirectly, this will also affect the market's demand for flowers.In this case,the market's demand is not severely affected because the 10% increment does not make significant changes on the price.

In economy,as the prices of flower increase,the demand tends to be lesser.However,there is a special case where demand continues to grow eventhough the price has increased.This condition happens when the marginal benefits exceeds the marginal cost.(Mankiw,2004)The marginal benefits that occur in this situation is the reaction of the one who received the flowers.It is worth buying flowers irregardless of price in exchange back for a cheerful smile.Thus,eventhough the price has increased,people will still buy overpriced flowers.For example,people will still buy roses during Valentines Day eventhough the price of flowers has doubled or tripled the original price.

Besides that,public policy makers also make a major influence towards people response.According to the article(The Star ,Ngo2012),it mentioned that "over 100 of our members are small scale growers who have been affected by labour shortages due to the Home Ministry's 6P amnesty programme" The programme is to reduce the dependence on foreign workers .Illegal foreigners workers who fail to registered could face strict legal action.(FMT News,Toh 2012)The strict laws will affect the shortage of labours as people find it troublesome and there's alot of procedures that need to be done that lead to a waste of time. Moreover, they might need to pay an amount of money to the government to hire non-immigrants to work in nurseries. In a nutshell, people make decisions according to what benefits them the most.The decisions that they made will eventually affect the market.People will continue to purchase an item if marginal benefits exceed marginal costs.Besides that,the policy makers will also affect people’s decision. (473 words)

References

Mankiw,N.G.(2004).Principles of Economics.(3rd ed)United States of America:Michael P.Roche.

Edmund Ngo (2012 , March 4). Flower prices to increase by 10%:The Star.,p.3.

Teoh E.S.(2012,January 10) 6P registration:Errant employers warned.FMT News.Retrieved

from http://www.freemalaysiatoday.com/2012/01/10/6p-registration-errant-employers-

warned/

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