How People Make Economic Decisions
- Submitted by: scandalousck
- Views: 690
- Category: Other
- Date Submitted: 11/22/2010 07:11 PM
- Pages: 3
- Report this Essay
How People Make Economic Decisions
LaWanda Burns
Eco 212
October 18, 2010
How People Make Economic Decisions
In today’s economy, the consumer is faced with making decisions daily; each choice that we make has risk associated with it. When making a decision we should keep in mind the three principles of individual decision-making, which are trade-offs, scarcity and incentive.
During these times, we face a trade-off. Trade-off is the idea that because of scarcity, producing more of one good or service means producing less of another good or service. There are simply not enough goods and services to satisfy everyone’s consumption desire. (Wikipedia, 2010)
Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants. When we decide to give up something, we lose the benefits of its services to or incur costs to obtain the benefits of the items we actually need. Making decisions requires comparing the costs and benefits of alternative courses of action (Wikipedia, 2010).
A rational decision-maker takes on an action if and only if the marginal benefit of the action exceeds the marginal cost (www.investopedia.com, n.d.). Sometimes the goals that we set for ourselves are taken for granted. We tend to put them on the side and come back for it later instead of setting a goal to complete the action.
People respond to incentives by assessing costs or profits, behaviors may change when the costs or profits change. As buyers we must price compare to find the best deal. Whether it is looking for a cell phone or searching for a home. We have to make decisions that will aid us in the end.
When purchasing a computer, I had to decide whether or not I wanted an inexpensive computer that will do minimal work or do I want an expensive computer that will execute ever task. In making my decision I had to make a marginal decision by comparing both computers, deciding on price, execution, and memory. I also looked at reviews...
LaWanda Burns
Eco 212
October 18, 2010
How People Make Economic Decisions
In today’s economy, the consumer is faced with making decisions daily; each choice that we make has risk associated with it. When making a decision we should keep in mind the three principles of individual decision-making, which are trade-offs, scarcity and incentive.
During these times, we face a trade-off. Trade-off is the idea that because of scarcity, producing more of one good or service means producing less of another good or service. There are simply not enough goods and services to satisfy everyone’s consumption desire. (Wikipedia, 2010)
Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants. When we decide to give up something, we lose the benefits of its services to or incur costs to obtain the benefits of the items we actually need. Making decisions requires comparing the costs and benefits of alternative courses of action (Wikipedia, 2010).
A rational decision-maker takes on an action if and only if the marginal benefit of the action exceeds the marginal cost (www.investopedia.com, n.d.). Sometimes the goals that we set for ourselves are taken for granted. We tend to put them on the side and come back for it later instead of setting a goal to complete the action.
People respond to incentives by assessing costs or profits, behaviors may change when the costs or profits change. As buyers we must price compare to find the best deal. Whether it is looking for a cell phone or searching for a home. We have to make decisions that will aid us in the end.
When purchasing a computer, I had to decide whether or not I wanted an inexpensive computer that will do minimal work or do I want an expensive computer that will execute ever task. In making my decision I had to make a marginal decision by comparing both computers, deciding on price, execution, and memory. I also looked at reviews...