...How People Make Economic Decisions Francisca A. Castellanos ECO212 January 18, 2011 Evanthis (Pete) Mavrokordatos How People Make Economic Decisions Decisions, decisions, decisions…Decisions are the worst, and yet we must make them each and every day. The ten principles of economics explains how people make decisions, how people interact, and how the economy as a whole works. Economics is a behavioral science, which studies how societies manage their scarce resources (Hubbard-O’Brien, Glossary). Societies have different economic interactions that are affected by the type of economic system present. The main attributes of each system are as follows. In a market economy decisions of households and firms interacting in markets allocate economic resources (Glossary). In a centrally-planned economy the government decides how economic resources will be allocated (Glossary) and in a mixed economy economic decisions result from the interaction of buyers and sellers in markets but the government plays a significant role in the allocation of resources (Glossary). My small society (household) depends on me to allocate our scarce resources (monetarily), taking into account our abilities, efforts, and desires. My husband makes decisions based on our emotional needs as a family, yet both parts are equally important. How People Make Decisions Principle One: People face trade-offs. Making decisions requires trading off one item for another. I face this dilemma all the time because...
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...How People Make Economic Decisions ECO/212 February 3, 2011 How People Make Economic Decisions Consumers are a major key in economics and every decision they make is rational; this is what economist assume. Consumers make decisions on four basic principals; trade-offs, opportunity cost, marginal changes, alternative marginal benefits and scarcity resources. Four Basic Principals of Decision Making First principal are trade-offs. A person needs to weigh the want over the means; so this means getting a good or service that the person wants and then needs to give up on or the other. The second principal is opportunity cost. Making a decision based on cost and benefits and possible looking for an alternative conclusion. The third principal is marginal changes. Consumer decision would be based on marginal benefits and comparing with marginal costs of the conclusion. Alternative benefits changes the marginal costs or benefits to motivate people to respond. The fourth principal is called scarcity. Consumers have to make choices because in the economy the goods and services are scarce. People exceed their wants when there are limited services and goods to meet the means of consumers. In my personal experience, I used the four basic principals in the decision making of returning to school. I have been out the school for many years and was afraid of making the final decision of returning to school. I finally looked at many variables that I took into consideration in making...
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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 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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...How People Make Economic Decisions Hoy en día según todas la fuentes de información; la economía global y mundialmente hablando está afectada y cada vez más en deterioro. Pero antes de todo debemos comenzar a preguntarnos ¿Qué es economía? La economía es la ciencia social que estudia como las personas se ocupan de sus recursos limitados para así poder lograr una máxima satisfacción en sus limitadas necesidades. Ahora bien; cómo podemos saber cuáles son las principales decisiones que uno debe tomar en consideración, toda persona racional a la hora de toma una importante decisión en su economía deberá identificar el problema y analizar que tiene que hacer para que su economía mejore y sea estable. Luego establece una hipótesis o posible solución que le ayude al entendimiento de su problema y más adelante tendrá la difícil situación de comprobar que lo establecido tenga validez, tendrá que hacer un estudio de que esta en lo correcto o en lo incorrecto. Y por ultimo rechazar o aceptar la forma de pensamiento y que por supuesto te llevara a mejorar o a al fracaso de tu economía. En un momento de mi vida tuve una gran decisión que tomar y fue hace 3 años y era si cambiaba de empleo o no. Mi empleo era fijo en la banca por 5 años consecutivos, con un sueldo mínimo que no me daba ni para comerme un helado, era en la zona metropolitana y los tapones eran increíbles. Eso si me encantaba mi trabajo, mis compañeros y mi jefa era la mejor, además tenía mi plan médico, plan de retiro...
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...How People Make Economic Decisions Paper Darlene M. Lyles ECO/212 Principles of Economics Darrell Watts University of Phoenix July 14, 2010 Four Principles of Individual Decision-Making The four principles of Individual Decision-Making are trade-offs, opportunity cost, marginal benefits, and incentives (Hubbard & O’Brien, 2010). Trade-offs are defined as risking losing something in return for gaining something else (Hubbard & O’Brien, 2010). It is implied that the person making the trade-off fully comprehends what he is giving up and gaining (Hubbard & O’Brien, 2010). Opportunity cost is defined as the benefits one could have received by taking an alternative action (Hubbard & O’Brien, 2010). There are will always be choices, but choosing option that is the most beneficial in detrimental to effective decision making. Marginal benefits are defined extra amount a person is willing to pay for a product (Hubbard & O’Brien, 2010). Applied to decision making, marginal benefits are separate from incentives. M.B. are the fringe benefits associated with one of the choices. Incentives are defined anything that motivates a particular course of action (Hubbard & O’Brien, 2010). Incentives are used to sway and influence decision making but may not be worthwhile after the decision is made. Provide an example of a decision in which you compared the marginal benefits and the marginal costs associated with that decision. A decision that was made in which the writer compared the marginal...
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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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...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 ECO 212 April 9, 2012 As the focus of the economy becomes dim, economists are tasked with challenges to seek out optimistic measure that will guarantee a future for society. The focal point centers on the lessons of economics. Economics consist of choices made by consumers, business managers and government officials who attain manage their resources for success. An outline for economic success measures will be discussed through this writing, addressing principles of decision making, comparative cost analysis versus benefits, and incentives for decisions made. Additionally addressed will be the attributes of the economic systems (market, centrally planned and mixed) with affects of economic interactions of the present system. Exploring the world of economics, three principles are considered. First, people are rational, an assumption developed by economists. The decision of rational people is to weigh the benefits and cost of actions for profit. Second, people respond to economic incentives driven by a variety of motives such as envy, beliefs and compassion. Third, optimal decisions are made at the margin, involving activities up to the point where the benefit equals the cost. As a seasoned veteran of local government employment, continuing my educational pursuit in consideration of my age became a major component in determining my success. A marginal benefit of my decision to continue my education would be to enhance my skills...
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...How People Make Economic Decisions Paper ECO/212 How People Make Economic Decisions The economic decision an individual, household, or even a firm makes has a major impact on the economy as a whole. These decisions affect the supply of a good or service, the demand of that good or service and ultimately the price of that good or service. This paper will focus on how individual decision making affects an economy, how understanding the marginal benefits from the marginal cost affects economic decisions, and the three major types of economic systems. The main principle of individual decision making is utility. Utility is the enjoyment or satisfaction people receive from consuming goods and services. Another important factor is budget constraint, which is defined as the limited amount of income available to consumers to spend on goods and services. Social influences also has an effect on an individual’s decision making as Hubbard and O’Brien state, “Sociologist and anthropologists have argued that social factors such as culture, customs, and religion are very important in explain the choices consumers make” (Hubbard & O’Brien, 2010, pp. 3-31). A recent example of a decision in which one compared the marginal benefits and the marginal costs was a choice between spending money to go to a concert or to save money for a trip to Boston. The option of going to the concert would put an individual’s funds back approximately $70. The individual would have to postpone...
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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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...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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...How People Make Decisions GUILLERMO AVILA UNIVERITY OF PHOENIX How People Make Economic Decisions The word economy comes from the Greek word for “one who manages a household” and this concept itself involves decision-making. Such decisions are framed by activities related to people’s behavior in a society facing constant changes in response to incentives, making decisions pursuing different goals with different alternatives, and comparing marginal benefits and marginal costs to reach such goals. Principles of individual decision-making - People face trade-offs: “There is no such thing as a free lunch”. This saying explains this principle in that we are willing to give up something in order to get what we need or what we like. In our case, for instance, we are willing to give up our time to go to school and get a degree. There are three fundamental questions needed o be answered when decisions have to be made forced by trade-offs: What good and services will be produced, how goods and services are produced, and who will receive the goods and services. (Glenn Hubbard, Anthony Patrick, 2010). - People respond to economic incentives: “An incentive is something that induces the person to act”. (Mankiw, 2009). Because people are rational, people respond to incentives normally related to economical factors like price. Depending on the value of a good, consumers will be motivated to purchase and sellers to produce. -...
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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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