Compare_and_Contrast

How People Make Economic Decisions How People Make Economic Decisions Economics primarily deals with people, and is a reflection of how people interact with others as they go about making decisions regarding their lives. There are four principles of decision making; The first economic principle is people make tradeoffs. With this economic principle it means to receive one thing, you have to give up something else. Making decisions requires a trade off of one goal against another goal, (11Ja). The second principle of economics is when people choose one thing they give up something else, which means decision makers have to consider both the obvious and implicit costs of their actions, (11Ja). The third principle of economics is rational people think at the margin, which means a rational decision-maker takes action if the marginal benefit of the action exceeds the marginal costs, (11Ja). The final principle of economics is people respond to incentives, which means behavior changes when costs of benefits change, (11Ja). One example that comes to mind on making a rational decision, completing the weekly readings and assignments. When we are assigned our weekly readings and assignments, I have to decide whether or not to read all the chapters in one day, or read them all on separate days. Which would be easier and which way would help me achieve the goals of completing my assignments in a timely manner' I this case I have to weigh the marginal benefits of reading the assigned chapters all at once or spread them out to read them each day. If I spread them out over the week I will not feel so overwhelmed, but I do not read more than one chapter a day, I will be cramming to complete my assignment. If I weigh the marginal benefits of less stress from having to cram the assignments and perhaps getting a good grade against the marginal costs of the things I would have to give up to read more than one chapter a day. The incentives that led me to make a different decision is the marginal benefits of not having to cram and receiving better feedback on the assignment. One can use economics to explain any type of decision. For example: when a professional football team drafts a professional football player from another team. There benefits to both parties. The professional football team has a chance to go to the super bowl and the professional football player receives more money from the draft. Both parties in the end are happy, because they both got satisfaction from the decision. Many people makes decision based on the benefits, which means people feel the need to interact with the environment and others to make a decision that will end with a benefit. This is also the same for how our economy works as a whole, whether it is our government or large organizations. A large organization employs people because those people are offered incentives to work for the large organization. The principles of economics are how people make decisions, how the economy works together, and how people interact as a whole. Decisions are based on the incentives involved as well as who is involved in the decision. References