Economic_Decisions

How People Make Economic Decisions Lori Hill University of Phoenix April 5, 2010 Throughout our history as a young growing country, there have been good times and bad times. Some though, have been much worse than others. Like in the Great depression during the 1930's was one of the worst times, economically that this country had seen in our short history. Though it wasn't easily recovered from, our now failed economy has been looking better for us by each passing day. It may have been devastating to many in our time, it still never came as close to being as "depressed" as it was in the 1930's Depression. Which brings out the issue of how do we make smart economic decisions' We make them every day whither we realize it or not. For example most of us have had a decision relating to gas, are you going to stop at the first gas station on the way home or are you going to check the prices on line first and get gas in the morning or after dinner. There are four principles to making an individual economic decision. They are trade-offs, cost of something rational thinking and incentives. A trade off is when you put more into one and less in the other. Lest use car verse mortgage payment. You need a car to get around and you also like to put more into your mortgage than it requires. So you can skip over paying on your mortgage for a few months and use the money to put onto a new car. You trade off paying your house down for a new car. Then there is the cost of something. You give up something for another thing, does not mean that you give up money either. For the sake of argument, let us say that you went to a movie with your wife instead of going to a football game with your friends. You gave up the football game to spend time with your wife. Now we have rational thinking. Rational thought is the processes were you are thinking of the next step to reach your goals. For example this paper you need to think of the steps to get the finished copy done. Like the brain storming then the written long hand then the final copy on the computer. You don’t just jump in to the finished copy because it will not be as good. Lastly we have incentives, people like incentives. This is because an incentive is something that you get for doing or not doing something. For example you bought a car and it came with a lifetime warrantee and roadside assistance. This encourages people to buy from that dealer or that particular car. Which, this type of incentive is also a marginal benefit at a low marginal cost.