How People Make Economic Decisions
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- Date Submitted: 02/10/2011 11:20 AM
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How People Make Economic Decisions
ECO/212
January 20, 2011
How People Make Economic Decisions
Society forces everyone to make decisions. The decisions people make ranges from what to eat, to what to buy. This paper will cover the principles of decision-making, marginal benefits and marginal costs, incentives, principles of economics, and economic interactions. Trade-offs, opportunity cost, marginal changes, and incentives are the four principles of decision-making. In economy nothing in life is free, so this study will began with discussing trade-offs.
Trade-offs is the idea that because of insufficiency, manufacturing more of one service or good means manufacturing less of another service or good (Hubbard & O’Brien, 2010).
The second principle is opportunity cost, which Hubbard and O’Brien (2010) define as the highest valued alternative given up to engage in an activity. The third principle is marginal changes or analysis. Economist speaks of the term marginal changes or analyst to illustrate undersized incremental alterations to a plan of action. Rational people decide by comparing marginal benefits and marginal cost. Incentive is the fourth principle. Incentive is something that encourages a person to act. Incentive can appear in the form of punishment or a reward. Coherent people react to incentives because they formulate decisions by comparing benefits and expenses (Mankiw, 2007).
Personal Experiences
Every day people make decision based on comparing the marginal benefits and marginal costs between certain items. Once a week I have to decide whether I should cook on Thursdays for my family or should we order in. Although cooking is cheaper and healthier, my family and I order in on most Thursdays because of lack of time and ordering in saves less time, and is convenient. A home cooked meal is healthier and cheaper; this represents marginal cost, whereas ordering in saving more time represents marginal benefits. Incentives...
ECO/212
January 20, 2011
How People Make Economic Decisions
Society forces everyone to make decisions. The decisions people make ranges from what to eat, to what to buy. This paper will cover the principles of decision-making, marginal benefits and marginal costs, incentives, principles of economics, and economic interactions. Trade-offs, opportunity cost, marginal changes, and incentives are the four principles of decision-making. In economy nothing in life is free, so this study will began with discussing trade-offs.
Trade-offs is the idea that because of insufficiency, manufacturing more of one service or good means manufacturing less of another service or good (Hubbard & O’Brien, 2010).
The second principle is opportunity cost, which Hubbard and O’Brien (2010) define as the highest valued alternative given up to engage in an activity. The third principle is marginal changes or analysis. Economist speaks of the term marginal changes or analyst to illustrate undersized incremental alterations to a plan of action. Rational people decide by comparing marginal benefits and marginal cost. Incentive is the fourth principle. Incentive is something that encourages a person to act. Incentive can appear in the form of punishment or a reward. Coherent people react to incentives because they formulate decisions by comparing benefits and expenses (Mankiw, 2007).
Personal Experiences
Every day people make decision based on comparing the marginal benefits and marginal costs between certain items. Once a week I have to decide whether I should cook on Thursdays for my family or should we order in. Although cooking is cheaper and healthier, my family and I order in on most Thursdays because of lack of time and ordering in saves less time, and is convenient. A home cooked meal is healthier and cheaper; this represents marginal cost, whereas ordering in saving more time represents marginal benefits. Incentives...