...CHAPTER 1 DECISION MAKING AND THE ROLE OF ACCOUNTING TEXT REFERENCE: Hoggett, J.R., Edwards, L., & Medlin, J., Accounting in Australia, Fifth Edition, Chapter 1. OBJECTIVES: When you have studied this chapter, you should be able to: 1. understand the nature of decisions and the decision-making process. 2. appreciate the wide range of economic decisions made in the marketplace. 3. explain the nature of accounting and its main functions. 4. identify the potential users of accounting information. 5. use information to make simple economic decisions. 6. understand the role of accounting information in the decision-making process. 7. understand the differences between accounting for management and accounting for external users. 8. understand how the accounting profession is organised in Australia. 9. identify the different areas of the economy in which accountants work. 10. understand the importance of ethics in business and accounting and how to recognise and handle ethical dilemmas as part of the decision-making process. 1 Chapter 1 STUDY TIPS FOR CHAPTER 1 1. This is an important chapter because it lays the foundation for all topics that will follow. 2. Make sure that you understand each new term as it is introduced. 3. Pay particular attention to the significance of accounting information for decisionmaking processes. 4. Identify the types of activities that are carried out...
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...cs How People Make Economic Decisions Paper University of Phoenix Eco 212 May 29, 2011 Economics plays a role in every person’s day-to-day life. One aspect that it plays apart in is decision making. For every decision that is made economics is applied. There are principles that relate to decision making. First is that for every decision made there are tradeoffs, to get one thing something else is given up. The next principle is for every decision made there is a cost. The cost is what was given up. The third principle is people think rationally and rational people think on the margin, meaning that the decision is not made unless the marginal benefit exceeds the marginal cost. The final principle is that people respond to incentives. Behavior changes when cost or benefits change. These principles explain how the economy functions as a whole. Since resources are scarce people have to make decisions based on benefiting themselves on how to spend their time and money. To make rational decisions people must interact with the environment and other decision makers. These interactions lead to the best allocation of resources. When people interact with one another they make trade for resources when the benefit is mutual. For example buying a soda the buyer is thirsty and enjoys soda so he or she will benefit from the soda, and the vender will benefit from the money for the soda so the trade has been made. These interactions are affected by the economy system present. In a...
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...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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...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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...Economic Systems (Brief Descriptions) Command System A command or “planned” economy is an economic system where economic decisions are made by a centralized planner (usually the government). The centralized planner(s) determine what types of goods and services to produce, the amount to produce, the prices and where to distribute them. The government (or the centralized planner) also owns the land, factories, and machines and decides how the goods and services will be produced. The government decides who will work where, and what machines and raw materials will be available to them. Finally, by establishing the pay and benefits available, it also decides for whom the goods and services will be produced. Through this system, a fairer distribution of income may be achieved, unemployment reduced/eliminated, and the assurance of production of socially useful products. However, unpopular decisions about the future may be made, unrealistic/ inaccurate estimates may be made thus resulting in over production or underproduction of certain items in the market. Market System A market economy relies heavily upon the market forces to determine the prices and quantities of goods, and the allocation of goods and resources. The higher the demand for certain goods, the higher the prices will be. Businesses will produce/supply the goods and services that are in demand because they are motivated by profits. What to produce is determined by the dollar votes of consumers. How to produce is determined...
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...anaCHAPTER 1 DECISION MAKING AND THE ROLE OF ACCOUNTING TEXT REFERENCE: Hoggett, J.R., Edwards, L., & Medlin, J., Accounting in Australia, Fifth Edition, Chapter 1. OBJECTIVES: When you have studied this chapter, you should be able to: 1. understand the nature of decisions and the decision-making process. 2. appreciate the wide range of economic decisions made in the marketplace. 3. explain the nature of accounting and its main functions. 4. identify the potential users of accounting information. 5. use information to make simple economic decisions. 6. understand the role of accounting information in the decision-making process. 7. understand the differences between accounting for management and accounting for external users. 8. understand how the accounting profession is organised in Australia. 9. identify the different areas of the economy in which accountants work. 10. understand the importance of ethics in business and accounting and how to recognise and handle ethical dilemmas as part of the decision-making process. 1 Chapter 1 STUDY TIPS FOR CHAPTER 1 1. This is an important chapter because it lays the foundation for all topics that will follow. 2. Make sure that you understand each new term as it is introduced. 3. Pay particular attention to the significance of accounting information for decisionmaking processes. 4. Identify the types of activities that are carried...
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...Assignment no: 509 Answer Managerial economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organization can achieve it aims or objectives most efficiently. Importance of managerial economics Managerial Decision Problems Economic theory Microeconomics Macroeconomics Decision Sciences Mathematical Economics Econometrics MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS Managerial Decision Problems Economic theory Microeconomics Macroeconomics Decision Sciences Mathematical Economics Econometrics MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS Managerial enables the use of economic logic and principles to aid management decision-making. Managers are decision-makers and economics should be relevant to give practical guidance in arriving at right decisions. Every manager has to take important decisions about using his limited resources like land, capital, labour, finance etc. to get the maximum returns, therefore, managerial economics, concentrates on those practical aspects of micro-economics which help in decision-making. Managerial economics focuses on the most profitable use of scarce resources rather than on the achievement of equilibrium prices...
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...How People Make Economic Decisions Isaac Rangel ECO/212 November 20, 2010 Dr Pete Mavrocordatos How People Make Economic Decisions People are faced with choices to make every day because we live in a world of scarcity. People must make decisions on almost every aspect of their live. The author uses a few principles to apply to the individual decision making. The first idea behind a decision being made by and individual is that they are rational. The second idea is that people respond to economic incentives and finally the third is that optimal decisions are made at the margin. When the author says rational people, he does not necessarily mean that they know everything or they make the best decision. What he means is that people normally make a decision that benefits them instead of hurts them. For example a person will by a shirt because it is either confortable, cheap, or even fashionable but not because it is more expensive or uncomfortable or perceived as ugly. Economic incentive is normally overlooked because the incentive would seem very obvious. In reality many decisions are made largely in part just because of the economic incentive and not religious beliefs, envy, or compassion. Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost. (Hubbard & O'brien, 2010) Which means in other words, does the benefit of the decision out way the cost of getting that...
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...A New House – Decision University Of Phoenix XECO/212, Week 9, Final Project April 21, 2012 Catherine Higgins The decision to purchase a home is often the most important financial decision and individual or family will be faced with. The largest single financial purchase in an individual's lifetime is often the purchase of a house and one of the largest factors of personal wealth. All ten of the principles of economics are directly related to the decision to purchase a house on some level. These economic principles will have an impact on the purchasing decision and the long term financial aspects of home ownership so it is wise to incorporate these ten principles into the decision making process to ensure a sound financial decision is the outcome. When considering the purchase of a house, the ten principles of economics that need to be addressed can be broken down into three stages of the decision making process. The first step is to examine how the decision is made by incorporating the first four principles of economics which include, the trade off that comes with every financial decision, the real cost of any item or service is what is given up to get the item or service, rational people think at the margin, and people respond to incentives. Once it is clear how the decision is made, the next three principles of economics address how people interact with economics and include factors such as, trade is beneficial to everyone, markets are...
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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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...Economics studies how people, acting as individuals or in groups, decide to use scarce resources to satisfy wants. This fundamental economic concept of scarcity is at the core of the discipline. There are never enough natural resources, human resources, or capital resources (man-made goods such as tools, equipment, machinery, factories) to produce everything society wants. Therefore, choices must be made on what to produce, how to produce, and for whom to produce. Choices must also be made at a personal level. There never seems to be enough money or time to have or to do everything one wants. Economics is a way of thinking, a science of making choices. Economists examine the decision-making processes of individuals, businesses, markets, governments, and economies as a whole. An understanding of economic principles helps people to consider not only the short-term effects of a decision, but also its long-term effects and possible unintended consequences; to see the connections between personal self-interest and societal goals; to understand how individual and social choices are made in the context of an economy; and to analyze the impact of public policies and events upon such social goals as freedom, efficiency, and equity. Because of increasing interdependence and globalization, everyone in the United States needs to be aware of the issues in the global economy, their role in that system, and be able to respond to changes so that they can effectively maintain...
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...Understanding the Economics Standards for teachers in grades 9–12 Economics studies how people, acting as individuals or in groups, decide to use scarce resources to satisfy wants. This fundamental economic concept of scarcity is at the core of the discipline. There are never enough natural resources, human resources, or capital resources (man-made goods such as tools, equipment, machinery, factories) to produce everything society wants. Therefore, choices must be made on what to produce, how to produce, and for whom to produce. Choices must also be made at a personal level. There never seems to be enough money or time to have or to do everything one wants. Economics is a way of thinking, a science of making choices. Economists examine the decision-making processes of individuals, businesses, markets, governments, and economies as a whole. An understanding of economic principles helps people to: • Consider not only the short-term effects of a decision, but also its long-term effects and possible unintended consequences; • See the connections between personal self-interest and societal goals in order to understand how individual and social choices are made in the context of an economy; • Analyze how social goals, such as freedom, efficiency, and equity, impact public policies. Because of increasing interdependence and globalization, everyone in the United States needs to be aware of the issues in the global economy, their role in that system, and be able...
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...How People Make Economic Decisions Brittany Hansen June 2011 Mr. Krupka How People Make Economic Decisions From the time a person starts working to pay bills or buy products they are forced into making decisions that will affect their bank account. There are four different principles that play into the decision-making process. While these decisions will affect marginal benefits and costs, there are incentives for the choice as well. The principles of economics relate to the working of the economy in many ways. These attributes assist in the interactions that can affect our current economic system also. Principles of Individual Decision-Making The four different principles of individual decision-making are: * People make tradeoffs * When people choose one thing they give up something else * Rational people think at the margin * And people respond to incentives People make tradeoffs because there are not enough resources and services to go around for everyone. An individual usually gives up one thing to acquire another. This leads us into when people choose one thing they give up something else. This principle means that each person has a limited amount of money and time to give. They are forced into deciding what is more important to their needs or wants at that time. Then the principle of rational people think at the margin comes into play. When a person has to make a decision there usually is a plan or existing action that the person wants to make...
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...How People Make Economic Decisions Paper Gary Brockington ECO/212 7-25-2010 Anil Marthur How People Make Economic Decisions Paper People make economic decisions every day throughout their lives. In this paper I will describe the three economic principles of individual decision-making. I will provide an example of a decision which I took part in and compared the marginal benefits against the marginal costs. I will also give those marginal benefits and costs acquainted with that decision. I will tell which incentives could have led me into making a different decision. Last I will explain how the principles of economics affect people’s decisions, interaction, and how the economy works as a whole. There are three economic ideas concerning people who have to make economic decisions. One is people are rational. This means that an individual always weighs the benefits and costs, and make their decisions only if the benefits outweighs the costs (Hubbard, O’Brian, 2010). The second economic idea is people always respond to economic incentives. This simply means that people respond to incentives from variety of motives (Hubbard, O’Brian, 2010). The third idea is that optimal decisions are made at the margin. This means that when he or she is making a decision in which they are going to hit the jackpot or lose everything. There have been many cases in which I had to look at the marginal costs and the marginal benefits. The biggest decision I had to make was whether I was...
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...Exercise 1 Solution Chapter 1 Economics: Foundations and Models 1.1 Three Key Economic Ideas 1) Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution. Answer: A Comment: Recurring Diff: 1 Page Ref: 4/4 Topic: Scarcity Objective: LO1: Explain these three key economic ideas: People are rational. People respond to incentives. Optimal decisions are made at the margin. AACSB: Reflective Thinking Special Feature: None 2) By definition, economics is the study of A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand. Answer: C Comment: Recurring Diff: 1 Page Ref: 4/4 Topic: Scarcity Objective: LO1: Explain these three key economic ideas: People are rational. People respond to incentives. Optimal decisions are made at the margin. Special Feature: None 3) Where do economic agents such as individuals, firms and nations, interact with each other? A) in public locations monitored by the government B) in any arena that brings together buyers and sellers C) in any...
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