Economics_Decision_Making

Economics Decision-Making Erika Escalante University of Phoenix Moises Rodriguez ECO/212 January 26, 2010 Abstract This paper will review the four principles of individual decision-making and the factors that can alter the decision in a purchase. The marginal cost, marginal benefit, and incentives are part of the decision-making process and play key roles in altering your decision. Economics Decision-Making As consumers of today’s society buyers and sellers are faced with the difficult financial decisions that our economy requires us to make. Four principles of economics exist which can affect the decision-making interactions as well as the functions of the economy. I have found myself in tough situations, and have made decisions greatly influenced by the marginal benefits and costs. Although we may not always realize, it we all make economical decisions that are based on the cost of what it would take to produce more and what benefit it would have if produced (Marginal costs and benefits, 2009). Four Principles Economics is defined as the study of how society manages its scarce resources. The first four principles that make people use to make decisions are tradeoffs, the cost of something, margin, and the response to incentives. Decision-making requires people to trade off one goal against another. This allows the decision maker to achieve something by giving up something else. As, the decision maker the obvious and implicit costs of actions determine what they are willing to give up and as the rational decision maker the marginal benefit will exceed the marginal cost of the product that is purchased. In general consumers will respond to the change of cost or benefits (Mankiw, 2007). Marginal Benefits I recently went to the store to purchase a flat iron for my hair. While, taking a look at the variety of irons available I came upon two flat irons at the price of $29.99. One of the flat irons had a venting system that allowed the purchaser to iron the hair although wet. Both flat irons were for the price of $29.99 but the marginal benefit of the wet to dry flat iron surpassed that of the other flat iron which was the determining factor in my decision. My purchase was determined by the time I would be saving by not blow drying my hair along with the additional shine I would be adding with the steam that flat iron generates with the wet hair. Not many incentives could have altered my decision to purchase the other iron unless the product had the same effect with an additional hair product included with the purchase. Marginal Cost The purchase of the flat iron was based on the price and the extra benefit that the iron was providing for the same price as the other iron. The marginal cost is the extra amount that was spent to add the wet to dry benefit to the flat iron. The principles of economics can alter my decision in the purchase of a product. The cost of the product along with the added benefit the product comes with will be the deciding factor to my purchase. The sacrifice that I am willing to make to obtain the product is a determining factor in my decision as well. Conclusion As a consumer of the economical society many components are critical to the decision-making process of a purchase. The first four principals of economics consist of the cost of the product, the desire to obtain the product, and the benefits that the consumer will receive from the purchase. Comprehending the marginal cost and the marginal benefit of the product is a vital part of the economy. Buyers and the sellers of the society make important economical decisions on a daily basis, many of which are rational whereas others are based on benefits and incentives. References Environmental literacy council. Margin costs and benefits. (2009). Retrieved on January 17, 2009 from http://www.enviroliteracy.org/article.php/1323.html Mankiw, N.G. (2007). Principles of economics (4th ed.) Retrieved from the University of Phoenix eBook Collection database.