Principles of Individual Decision-Making
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Principles of Individual Decision-Making
The four principles of individual decision-making is trade-offs, opportunity costs, margins and incentives. According to Mankiw, Trade-offs is something that you have to give up to get what you really want or need. An example is that I recently decided to return back to school to finish up my degree after being out of school for almost two years. I had to give up hanging out with my friends on the weekends and the quality time I use to spend with my husband and daughters has decreased so I can focus on what I need to do to complete my degree. Opportunity costs are what you would give up to get something else. Individuals give up an opportunity to use or enjoy something in order to select something else. In order for me to return back to school full-time I had to give up my full-time job and work part-time so I also have time for my schoolwork.
The margin is the boundary between doing and not doing. Rational people do the best that they can do and they think in terms of doing “a little more” or “a little less.” A rational decision maker “takes an action if and only if the marginal benefit of the action exceeds the marginal cost.” For example, when I know an assignment is due, the decision I need to make is should I be reading the assigned chapters or spend that time working out at the gym that I’m paying a monthly membership fee at. I know I need to get my assignment done but also want to go to the gym to workout. Incentives are something that a person would react to such as an award. The incentive that I’m working towards is obtaining my degree, which would help me in getting a better job. Finally, the principles of economics affect decision-making, interaction, and the workings of the economy as a whole because all people make decisions based on what they want and is best for them personally. Many of our decisions do not only affect only ourselves but everyone else as well.
References
Ten...
The four principles of individual decision-making is trade-offs, opportunity costs, margins and incentives. According to Mankiw, Trade-offs is something that you have to give up to get what you really want or need. An example is that I recently decided to return back to school to finish up my degree after being out of school for almost two years. I had to give up hanging out with my friends on the weekends and the quality time I use to spend with my husband and daughters has decreased so I can focus on what I need to do to complete my degree. Opportunity costs are what you would give up to get something else. Individuals give up an opportunity to use or enjoy something in order to select something else. In order for me to return back to school full-time I had to give up my full-time job and work part-time so I also have time for my schoolwork.
The margin is the boundary between doing and not doing. Rational people do the best that they can do and they think in terms of doing “a little more” or “a little less.” A rational decision maker “takes an action if and only if the marginal benefit of the action exceeds the marginal cost.” For example, when I know an assignment is due, the decision I need to make is should I be reading the assigned chapters or spend that time working out at the gym that I’m paying a monthly membership fee at. I know I need to get my assignment done but also want to go to the gym to workout. Incentives are something that a person would react to such as an award. The incentive that I’m working towards is obtaining my degree, which would help me in getting a better job. Finally, the principles of economics affect decision-making, interaction, and the workings of the economy as a whole because all people make decisions based on what they want and is best for them personally. Many of our decisions do not only affect only ourselves but everyone else as well.
References
Ten...