How_People_Make_Economic_Decisions

How People Make Economic Decisions Decision making can be simple and complex, but it is very important in economics. Benefit and risk are in every decision that is made. There are four basic principles of economic decision making. The first is “people are rational” which means that the economists assume the consumers will use all available information to accomplish their goal. Rational people will only buy something is the benefit outweighs the cost. The second principle is “people respond to economic incentives”. As consumers we compare the benefits to the cost and if something changes are emotions and behavior may change too. The third principle is “optimal decision are made at the margin” which means its either all or nothing at all. We either get the item or we leave. The last principle is “people face trade off”. This has to do with a consumer trying to get what they want by trading or returning items that may be important to them. Know what marginal cost and benefits are very important in economic. Marginal cost is the big decision maker because marginal cost determines whether or not to adjust the production rate. As for marginal benefits is whether or not they gain profit from the change that been made. Most people without knowing think about marginal cost and benefits. When making a decision people are always basing their choices off their best interest. Like when going to the store to buy items, we base our decision by asking our self simple questions. For example we might ask our self if it would be cheaper to get more than one item or would it cost more. What would be the benefit of get acquiring another item' People base their decision off reason. For example buy candy bars. The marginal cost of getting 200 candy bars instead of 100. The cost of 100 candy bars is $50 and if I decide to get 200 candy bars it will cost $90. The marginal cost for getting the extra candy is $40. Now the marginal benefit is if they can sale all the candy bars they will have a higher profit, but if not they will be losing money. It also depends on how fast they move the produce because you get better deals if you purchase more products at once. The principles of economics affect decision making in our economy because everyone makes economic decision on a daily base. Like for example whether or not to cook or eat out for the night or what city to purchase or rent a house. Everyone is a consumers and the economy will always be affected by what we chose to spend our money on. Reference Hubbard, R. G., & O'Brien, A. P. (2010). Economics (3rd ed.). Boston, MA: Prentice Hall.