Economic_Decisions_Paper

Running head: ECONOMIC DECISIONS PAPER Economic Decisions Paper University of Phoenix Principles of Economics ECO 212 Thomas Patton July 19, 2009 Economic Decisions Paper Economics have been around since the beginning of evolution of human kind. The first trade of stone for currency or the exchange of meat for hunting tools became essential to individuals to acquire something in exchange for another. Economic decisions are choices that people in society make daily. The following will explain the four principles of decision making, and the way the decision making process helps individuals make purchases. The decision making process is broken down in the simplest form according to the textbook. The textbook states that the four principles of economic decision making are” (1) people face trade-offs; (2) the cost of something is what you give up to get it; (3) rational people think at the Margin; and (4) people respond to incentives. People face trade-offs because to get one thing that they like, they usually have to give up another thing that they like. The cost of something is what you give up to get it, not just in terms of monetary costs but all opportunity costs. Rational people think at the margin by taking an action if and only if the marginal benefit exceeds the marginal cost. People respond to incentives because they choose activities by comparing benefits to costs; therefore, a change in these benefits or costs may cause their behavior to change (Mankiw, 2007, p. 857).” A decision that was made according to the four principles of individual decision making was practiced recently in a familiar household. The dilemma was that the current family television set was no longer working. The television was used as a form of entertainment for the family and guests. The decision was to retire the old television unit and to purchase a new television unit. The marginal cost of the new television unit was minimal compared to the marginal benefit of the new television unit. The new television unit was a floor model, which made the unit affordable. The incentive of purchasing the floor model was fairly simple. The new floor model television unit had the same warranties as the closed box television units and the family acquired the extended warranty. The new television unit had more features and offered better picture quality than the old television unit. In conclusion, the decision making process in a household is the about the same in most households across the planet. In corporations the decision making processes on a much greater scale. Price and quality of the good or service weighs heavily on what a consumer will or will not purchase. The decision of the consumer and businesses are what drives economies worldwide. Reference Mankiw, G. N. (2007). Principles of Economics (4th ed.). Mason, Ohio: Cengage Learning.