How People Make Economics Decisions
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How People Make Economics Decisions
University of Phoenix
Principles of Economics
ECO/212
How People Make Economic Decisions
According to Mankiw, the four most important principles of individual decision-making are: “People Respond to Incentives, The Cost of Something Is What You Give Up to Get It, Rational People Think at the Margin, and People Face Trade-offs:”
People face trade-offs by having to give up something to get what they want or need. This is no surprise for most people who learn early in life that few things are free. As an example of a trade-off, many times students from college give up spending time with their families in order to complete their homework and accomplish their goals of earning a Bachelor or Masters Degree. Because of the “trade-offs, making decisions require comparing the costs and benefits of alternative courses of action” (Mankiw).
Next, rational people think ahead of time and on the spot. A rational decision maker “takes an action if and only if the marginal benefit of the action exceeds the marginal cost” (Mankiw). An example of a decision comparing the marginal benefit and the marginal cost associated with that decision occurred when I decided to pay ahead of time a nice and descent condo in Puerto Penasco, Mexico, so my family and me could go on vacation. I had to choices and one of them was to get it ahead of time or to pay when we went on our vacation. The marginal benefits of the cost of the condo were different in the way that the cost was a big difference. Therefore, I based my decision on these personal incentives and started to save money even though my trip was going to be in a couple of months.
Of course, if the condo fee had been significantly higher than traveling by air, I would have more vacation time at work and more time with my family. I would have chosen to travel by air to reduce the cost of my trip especially on gas.
Finally, the principles of economics is...
University of Phoenix
Principles of Economics
ECO/212
How People Make Economic Decisions
According to Mankiw, the four most important principles of individual decision-making are: “People Respond to Incentives, The Cost of Something Is What You Give Up to Get It, Rational People Think at the Margin, and People Face Trade-offs:”
People face trade-offs by having to give up something to get what they want or need. This is no surprise for most people who learn early in life that few things are free. As an example of a trade-off, many times students from college give up spending time with their families in order to complete their homework and accomplish their goals of earning a Bachelor or Masters Degree. Because of the “trade-offs, making decisions require comparing the costs and benefits of alternative courses of action” (Mankiw).
Next, rational people think ahead of time and on the spot. A rational decision maker “takes an action if and only if the marginal benefit of the action exceeds the marginal cost” (Mankiw). An example of a decision comparing the marginal benefit and the marginal cost associated with that decision occurred when I decided to pay ahead of time a nice and descent condo in Puerto Penasco, Mexico, so my family and me could go on vacation. I had to choices and one of them was to get it ahead of time or to pay when we went on our vacation. The marginal benefits of the cost of the condo were different in the way that the cost was a big difference. Therefore, I based my decision on these personal incentives and started to save money even though my trip was going to be in a couple of months.
Of course, if the condo fee had been significantly higher than traveling by air, I would have more vacation time at work and more time with my family. I would have chosen to travel by air to reduce the cost of my trip especially on gas.
Finally, the principles of economics is...