Bus_Mgmnt

How People Make Economic Decisions ECO212 Survey of Economics June 7, 2010 Instructor: This quote: “people are rational, respond to incentives and optional decisions are made at the margin” (Hubbard & O’Brien 2010, p. 4) is the core of America’s market economy. That is because rational people weigh benefits and costs but we also react from other motives that go deep such as religion, envy and compassion. So then we also know that not “everyone knows everything or always makes the best decision” (Hubbard & O’Brien 2010, p. 5). That makes us make choices, some choices are all or nothing, but we all weigh the trade-offs and the demand of the consumers set the market regarding goods and services . Hubbard and O’Brien (2010) stated that in the first chapter, which basically showed that decision-making, in the economic market, involves people that are rational, they have to have economic incentives, and we, as consumers will always make decisions that are optimal at the margin. The margin involves goods and services and lets us, as consumers, to use our individual decision-making skills, and then that involves how companies along with countries make decisions. The readings discussed how, the government of the country of Estonia used economic incentives to help increase birthrates. Apparently, economists have decided that for a population such as Estonia, each women has to have 2.1 children to keep the population up and, not only has Estonia’s government acknowledged this, but that is how they look to the future and population plays a huge part in many countries economies. (Hubbard & O’Brien, 2010) Other countries influence our decision making skills because “trade today involves the decisions of millions of people around the world” (Hubbard & O’Brien, 2010, p. 49). It also involves how the market coordinates all of the decisions to the their advantage and use it to make money at a low cost while responding to the desires of us, the consumer, the workers and businesses of the country. This all represents a circular flow where one is dependent on the other to move forward. So, the center of markets is the consumer. The consumer decides what it wants, how much of it wants and who they are going to buy it from. The downside is if the consumer does not have a job and cannot dictate what they want and if more consumers go unemployed then the market goes sour where there may not be an individual decision making process. The market would have to shift and either lower production to keep their profit margin till the economy goes back up with more jobs and higher paid jobs for Americans, References: Hubbard, R. G., & O’Brien, A. P, (2010). Economics (3rd ed.). Boston: Prentice Hall.