How Individuals Make Economic Decisions
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How Individuals Make Economic Decisions
In life decisions are made every day. Ideas and the decisions that follow those ideas are the choices individuals make each day. It is implied, most people make sound rational choices and decisions. Rational people consider the benefits and costs of each decision, and they make decisions only if the benefits prevail over the costs. Unfortunately, everyone does not make rational decisions all the time. Rational behavior is a practical way to understand decisions people make. The four principles of individual decision-making are: People Face Trade-Offs, People Think Marginally, People Respond to Incentives, and People weigh the Cost and Benefits (Mankiw).
Trade-offs occurs when a people must give up something to receive something else. Time is a good example of this principle, a person can choose to spend his or her time studying for a test to guarantee a reputable grade or spend the time partaking in activities with friends and family or playing games online, which can cause them not to pass the class. The final decision will be created on the decisions we make (Hubbard & O'Brien, 2010).
People think and make decisions marginally. People make small incremental adjustments toward decision making. The optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost. An example of this principle, a cruise line charges $1,300.00, for a cabin. The as the departure date moves closer the cruise line may offer cabins at a marginal discounted rate or at a marginal increased rate based on customer demand (Mankiw).
People respond to incentives, whether it is positive or negative. An incentive is something that induces a person to act, such as the prospect of a punishment or a reward. Marginal change in cost or benefit encourages people to respond to the incentive positive or negative (Hubbard & O'Brien, 2010). People act from a variety of motives, such as spiritual...
In life decisions are made every day. Ideas and the decisions that follow those ideas are the choices individuals make each day. It is implied, most people make sound rational choices and decisions. Rational people consider the benefits and costs of each decision, and they make decisions only if the benefits prevail over the costs. Unfortunately, everyone does not make rational decisions all the time. Rational behavior is a practical way to understand decisions people make. The four principles of individual decision-making are: People Face Trade-Offs, People Think Marginally, People Respond to Incentives, and People weigh the Cost and Benefits (Mankiw).
Trade-offs occurs when a people must give up something to receive something else. Time is a good example of this principle, a person can choose to spend his or her time studying for a test to guarantee a reputable grade or spend the time partaking in activities with friends and family or playing games online, which can cause them not to pass the class. The final decision will be created on the decisions we make (Hubbard & O'Brien, 2010).
People think and make decisions marginally. People make small incremental adjustments toward decision making. The optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost. An example of this principle, a cruise line charges $1,300.00, for a cabin. The as the departure date moves closer the cruise line may offer cabins at a marginal discounted rate or at a marginal increased rate based on customer demand (Mankiw).
People respond to incentives, whether it is positive or negative. An incentive is something that induces a person to act, such as the prospect of a punishment or a reward. Marginal change in cost or benefit encourages people to respond to the incentive positive or negative (Hubbard & O'Brien, 2010). People act from a variety of motives, such as spiritual...