Economic Decisions Paper
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Economic Decisions Paper
Tiffany Barnes
Eco 212
Mark Durand
February 15, 2010
Economic Decision Paper
“The four principles of economic decision making are: (1) people face trade-offs; (2) the cost of something is what you give up to get it; (3) rational people think at the margin; and(4)people respond to incentives” (Mankiw, 2007). People face trade-offs means giving up something to gain something else. For example, if an individual purchases a new car and then incurs a monthly car note, then he or she in turn may have to give up luxury activities to fit the new bill into his or her budget. Next, the cost of something is what a person gives up to obtain something else which is the meaning of opportunity cost, monetary or nonmonetary. Trade-offs result in an opportunity cost, for example, if a box of frosted flakes cost $4 and a box of Special K cost $2 then the opportunity cost of buying frosted flakes is two boxes of Special K. Third, rational people think at the margin by taking an action if and only if the marginal benefit exceeds the marginal cost. For instance, if Luvel fat free milk cost 3.59 and the store brand fat free milk cost 2.89 a rational person will choose the store brand unless he or she just prefers the taste of the more expensive name brand. Last, people respond to incentives meaning rewards or encouragement can move individuals to make changes or work harder. For example, if an individual’s supervisor offers her or him a day off with pay for obtaining the most credit card applications then some individual will work harder to try to win a day off with pay.
An example of weighing marginal cost and marginal benefits that I encountered recently was accepting the job of accounting associate in the cash office. I could have remained a cashier full-time with full-time benefits or take the accounting job working part-time hours without the benefits but with a 50 cents raise. I was not aware of being reduced to part-time...
Tiffany Barnes
Eco 212
Mark Durand
February 15, 2010
Economic Decision Paper
“The four principles of economic decision making are: (1) people face trade-offs; (2) the cost of something is what you give up to get it; (3) rational people think at the margin; and(4)people respond to incentives” (Mankiw, 2007). People face trade-offs means giving up something to gain something else. For example, if an individual purchases a new car and then incurs a monthly car note, then he or she in turn may have to give up luxury activities to fit the new bill into his or her budget. Next, the cost of something is what a person gives up to obtain something else which is the meaning of opportunity cost, monetary or nonmonetary. Trade-offs result in an opportunity cost, for example, if a box of frosted flakes cost $4 and a box of Special K cost $2 then the opportunity cost of buying frosted flakes is two boxes of Special K. Third, rational people think at the margin by taking an action if and only if the marginal benefit exceeds the marginal cost. For instance, if Luvel fat free milk cost 3.59 and the store brand fat free milk cost 2.89 a rational person will choose the store brand unless he or she just prefers the taste of the more expensive name brand. Last, people respond to incentives meaning rewards or encouragement can move individuals to make changes or work harder. For example, if an individual’s supervisor offers her or him a day off with pay for obtaining the most credit card applications then some individual will work harder to try to win a day off with pay.
An example of weighing marginal cost and marginal benefits that I encountered recently was accepting the job of accounting associate in the cash office. I could have remained a cashier full-time with full-time benefits or take the accounting job working part-time hours without the benefits but with a 50 cents raise. I was not aware of being reduced to part-time...