How People Make Economic Decisions Essay - 672 Words

In today’s economy, decision-making skills vary for each household; however, the bottom-line goal for every individual is to get the most for their money. In order to do this, there are 4 principles of individual decision-making: facing trade-offs, evaluating what one is giving up to obtain their goal, thinking at the margin, and responding to incentives. The first principle in individual decision-making is facing a trade-off. In order for individuals to accomplish their goals or to obtain something they desire, there is usually something that must be given up or traded to accomplish that. In Chapter 1 Principles of Economics, efficiency vs. equity is discussed which helps further explain this principle. Society is always desiring to†¦show more content†¦To make the decision of what goals we are going to strive for, it is imperative to consider if the goal is worth the item(s) being given up. Is it worth not being able to do something else? How much money is it going to cost to obtain this goal or item? How much of my personal time is needed to accomplish this goal? These are all questions that must be asked and evaluated prior to making economic decisions. The third principle of individual economic decision-making relates to marginal decision-making. Rational people will think at the marginal level, making small changes or tweaks in their plans to achieve the desired objective. Rational people normally have a certain system or method he/she uses to achieve their objective and they understand that sometimes small changes must be made to accomplish this. The fourth and final principle talks about incentives, how people respond to incentives in decision making. When deciding what an individual wants or what goals to set for him or her, oftentimes having certain incentives will highly influence the decision-making process. When there is a valued opportunity or reward for achieving such a goal, an individual will look at that incentive and decide to what methods he or she will use to reach the ultimate goal. There are several occasions where I need to evaluate the marginal benefits and the marginal costs before I make a decision. For example, deciding what school to send my granddaughter to for high school. IShow MoreRelatedHow People Make Economic Decisions774 Words   |  4 PagesHow 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 theRead MoreHow People Make Economic Decisions677 Words   |  3 PagesHow 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 economicRead MoreHow Economic Decisions Are Made716 Words   |  3 PagesHow 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. â€Å"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 notRead MoreKey Principles of Economics1453 Words   |  6 Pagesstudy of economics is vital as it provides an understanding of how the world works. It is the study of how people choose to use resources to improve their well-being. According to Samuelson (1948) â€Å"Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.† This paper will outline the 10 key principles of economics. These principles are grouped into the three 3 categories of â€Å"How people make decision†, â€Å"How people interact†Re ad MoreClassical Financial Theory : Cognitive Psychology And Economics952 Words   |  4 Pageswhat influences people’s decision making can help solve some of the world’s most complex problems. Research in the financial sector has been dumbfounded by this very question since the advent of the stock market. Classical financial theory assumes investors behave with rational expectations in order to maintain an efficient market. Yet as we know, the idiosyncrasies in human behavior vary and financial markets tend to fluctuate up and down as a result. Recently, economics has begun to adopt the insightsRead MorePersonal Economic Decisions1455 Words   |  6 PagesHead: Personal Economic Decisions Personal Economic Decisions How People Make Economic Decisions People make economic decisions on a daily basis, from choosing to go to the grocery store and cook dinner or going out to eat. While in the general scheme of things this is a relatively small decision to make it still can have impact on the economy. Yet a decision for a family to have a child is more of a major decision and has far more of an impact on the economy then a dinner decision. There are fourRead MoreCognitive Economics : Behavioral Economics1115 Words   |  5 PagesBehavioral economics has also consulted inter-temporal choice. Inter-temporal choice describes to how humans decide about what and how much to do at different times when decide at a time effect the facilities available at another time. Choice under risk or ambiguity relates the dual-system theory. Research suggests that people’s decisions can be affected by the â€Å"type and amount of information† they find. A behavioral equilibrium depends on people take from frequently acts their equilibrium s trategiesRead MoreEcons1089 Words   |  5 PagesMANAGERIAL ECONOMICS Dr. Gong Jie National University of Singapore Why Do We Study Economics ï  ¶ People have to â€Å"Choose† â™ ¦ Resources are scarce. â™ ¦ There is No Such Thing as Free Lunch! ï  ¶ Economics: the science of Rational Choice â™ ¦ Rationality: the basic assumption â™ ¦ Rational Choice: Economic agents use all the information available to make decisions that most efficiently satisfy their needs and achieve stated objectives. â™ ¦ How do people make rational choice? This is the subject of Economics! PaulRead MoreEconomic Decisions Paper685 Words   |  3 PagesHow 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 economicRead MoreEconomic Guide to Everyday Life Decisions Essay522 Words   |  3 PagesEconomics guide everyday life decisions As my major is economics, I have leant how economics guide everyday life decision. Economics is the study of how people seek to satisfy their needs and wants by making choice. Because we all have limited resources, we have to make decisions daily. For example, gasoline. Are we going to stop at the first stop on the way home or are we going to check the price first and get gas in the morning. When decisions are made, they are usually based on supply and demand