Decisions

There are four basic principles of individual decision making because the economy affects the individuals and their behavior. First principle of individual decision making is that people face trade-offs. In other words, in order to get something one likes, one would have to give up something for another. The second principle is the comparison of the cost of something one may give up to get something else. For example, athletes and their decision to either play college sports and receive a degree, or allow to get recruited to a national team and play in the professional leagues making millions of dollars. The third principle is that rational people think at the margin. And finally the fourth principle of individual decision making is that people respond to incentives. As an example, most people would choose to purchase gasoline at a station 5 blocks further than the station they usually go to because the further one is $0.05 cheaper by the gallon. The third principle, rational people think at the margin, are based on the assumption that most people are rational and rational people tend to make their decisions upon comparison of marginal benefits and costs of the situation. For example, people pay ridiculous amount of money for the popular Apple products. This is because one’s “willingness to pay for any good is based on the marginal benefit that an extra unit of the good would yield.” It is not necessary to have these products, but since everyone has it and it is such a trend that not having these products will not have a negative effect on a person par say, but it might make one feel like they are left out. The most popular Apple product, the IPhone, has the marginal benefit which is so many people have the same product. Because of the benefit of having this product, this person disregards the issue of the marginal cost which basically is the out of pocket money they have to spend on something they might actually not need. For this reason, owners of this product have access to thousands of applications that the product offers, and are able to socialize with their friends and family better with this product in hand. With the amount that the owner uses their product, the marginal cost may be covered in the long run. But for someone that does not have use for such products will be in deficit of their own marginal cost. As the fourth principle states, decision making may be reflected upon incentives. For example, when purchasing an IPhone, the lowest initial cost for the phone itself is $99. When activating the phone with AT&T one would have to get a plan, lowest being $39.99, and also get the required data plan for $30 extra per month. This means that this person will be paying approximately $85 ~ $100 per month depending on which extra features was included, such as insurance and text messaging. In this situation, the incentive for this person could be that they use a regular phone, spending approximately $50 per month on their cell phone bill, and with the $600 they save by using the regular phone, they can buy themselves something nice or even travel. The principles of economics affect the individuals of the society for the reason that economy can be defined as people in a society interacting with each other because behavior of the economy can be reflected on the behavior of the individuals. Although decisions are believed to be made by a person’s own mind, one’s surroundings also influence the individual’s decision making. Factors like the economy, both social and personal, affect and sway a person to make certain decisions and how a person interacts with other people in the society because of the availability of the person’s economic situation.