How People Make Economic Decisions
- Submitted by: Leonsita
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- Category: Politics: Economics
- Date Submitted: 10/14/2010 06:40 PM
- Pages: 4
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How People Make Economic Decisions
Introduction
Studying the basic principles of economics has altered my decision making in some sense. I'll think of opportunity cost, etc. when it comes to buying things, but when it comes to my time, I don't really think about that so much. I find that having my life follow rational principles of economics takes all the spontaneity out of it, and it just isn't fun; however, I believe it has influenced me at least a little bit.
I’m affected through the economy because I’m a consumer. By being a consumer I’m a part of the system. Through elasticity/inelasticity I’m at the whim of whoever is making the decisions at the top with some items like gasoline.
Principles of Individual Decision-Making
Society faces trade-offs: producing more of one good or service means producing less of another good or service. for example people make trade-offs - there is a cost for everything and people value goods and services based on these costs. Opportunity cost is the cost of something is what you give to obtain it. Rational decisions are at the margin - people make decisions to make themselves happy. For example, if one would prefer to have more money, they would value this against having to work more. They are comparing the marginal cost of working to the marginal benefit of additional income. People respond to incentives - people only act when there is a perceived benefit. This benefit is the incentive. In short, people do what they perceive will make them happiest.
Marginal benefits are theoretical gains that you would make from some discrete action on the margin. Marginal costs are theoretical losses. For example, if you are out of shape you may consider the marginal costs and benefits of exercises. On the one hand, you will receive a benefit from working out today. On the other hand, it will take some pain and effort. It is up to you to decide whether the marginal benefit or cost is greater. If everyone acts in a manner that most...
Introduction
Studying the basic principles of economics has altered my decision making in some sense. I'll think of opportunity cost, etc. when it comes to buying things, but when it comes to my time, I don't really think about that so much. I find that having my life follow rational principles of economics takes all the spontaneity out of it, and it just isn't fun; however, I believe it has influenced me at least a little bit.
I’m affected through the economy because I’m a consumer. By being a consumer I’m a part of the system. Through elasticity/inelasticity I’m at the whim of whoever is making the decisions at the top with some items like gasoline.
Principles of Individual Decision-Making
Society faces trade-offs: producing more of one good or service means producing less of another good or service. for example people make trade-offs - there is a cost for everything and people value goods and services based on these costs. Opportunity cost is the cost of something is what you give to obtain it. Rational decisions are at the margin - people make decisions to make themselves happy. For example, if one would prefer to have more money, they would value this against having to work more. They are comparing the marginal cost of working to the marginal benefit of additional income. People respond to incentives - people only act when there is a perceived benefit. This benefit is the incentive. In short, people do what they perceive will make them happiest.
Marginal benefits are theoretical gains that you would make from some discrete action on the margin. Marginal costs are theoretical losses. For example, if you are out of shape you may consider the marginal costs and benefits of exercises. On the one hand, you will receive a benefit from working out today. On the other hand, it will take some pain and effort. It is up to you to decide whether the marginal benefit or cost is greater. If everyone acts in a manner that most...