How_People_Make_Economic_Decisions

How People Make Economic Decisions University of Phoenix ECO212 December 21, 2008 How People Make Economic Decisions People who face trade-offs are making the decision to exchange one thing of importance for another. When you wake up in the morning you start your day with making a trade-off decision. Should I sleep in a little longer or get up and start moving' Choosing to sleep longer will make you feel better, but will you make it to work on time or make that important meeting or appointment' The trade-offs are based on what you feel is more important. You enjoy getting a little more sleep, but maybe that important meeting will help advance your career or maybe a raise is involved. These are the trade-offs that need to be considered. A recent example is a decision to sell our 2008 spring calves to a friend for a trade of his registered horses. We thought this would be a great trade, as we didn’t have to give shots, castrate, and tag the new calves. The horse market is extremely bad, so we weren’t able to sell as many horses as planned. Our income would have been higher if we had kept the calves. The cost of something is what you give up to get it. While the cost of a good or service often is thought of in monetary terms, the opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. Any decision that involves a choice between two or more options has an opportunity cost (NetMBA.com, 2002-2007). This is a big decision for many older adults who have embarked on returning to school. Time is such a luxury that sometimes it is taken advantage of. A prime example is my decision to return to school. I have gone back and forth trying to figure out a way to make everything work. I always said if you can put 48 hours into a 24 hour day, my life would be so much easier. That will never happen so I must design a plan that will allow me opportunity costs. I will need to obtain my degree in order for me to advance my career and increase my salary. A degree will also give me the experience to do our business taxes instead of paying someone else to do them. Giving up time with my son, fiancé, and animals will hopefully not have a lasting negative effect. I have instilled good education into my son, so he better understands why I have returned to school late in life. Rational people think at the margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost (Slembeck, 2001). I believe there are less rational people in the world today. I see corporations making hasty decisions when it comes to marginal costs, I don’t believe they are weighing the costs to the benefits. They are all about themselves and less into what is good for the company. You can see it on the news everyday with the financial bailout happening. CEO’s of these corporations are still spending a ton of money on retreats, bonuses, and extravagant salaries. A personal example is with our cattle herd. We have a great registered Angus bull that produces nice long calves. I can go up and pet him, which I don’t recommend to everyone, and has a mellow disposition. We are at a point where we have to make the decision to trade bulls with a friend or purchase a new bull. We are not able to breed him with our last year heifers because you don’t back breed cattle. Will it cost more to purchase a new bull' It will depend on how easy it is to calve with this bull; will we have a mortality rate with a new bull we are not familiar with' If we trade bulls with our friend, we will be able to get information on how he breeds and what kind of calves he throws. We have to think about the cost of a new bull, which runs about $2500-3500. We have to think about the cost of calves that are hard to deliver, how aggressive this bull might be and fence he might wreck, mortality rate of the calves that don’t make it and the difficulty on the cows who are birthing. The cost of trading bulls would be cheaper than the purchase of a new bull. The marginal benefit outweighs the marginal cost. People respond to incentives due to rational thinking of the reward that will be given for doing something specific. Employers offer incentives for higher sales or making the company more money. This can be a cash bonus, paid days off, or a gift from the employer. It happens with business, as well as personal decisions. What is incentive for doing something beneficial' I consider the incentives of owning a ranch beneficial to my happiness. I have never worked so hard, physically, in my life as I have on the ranch. The hard part of the ranch is the heat, the snow, the wind driving the cold into your bones most days in the winter. I believe my family has endured many things dealing with all the work and the incentives of having the animals is a great opportunity. This incentive has taught my son to be responsible, to raise and train horses and steers, and that hard work can bring great joy. People will continue to make decisions based on what they learn and what they know. It might not always be a good decision, but there is always the chance to learn from a bad decision. Economics play a major role in society as everything and everyone are based on small and large decisions daily. As we look at the opportunities we have within ECO212, we will learn and experience much more than before. Economics is something I have always known, but this class will bring that knowledge to the surface. References Mankiw, Nicholas G. “The Principles of Economics,” Chapter 1, page 4-7. Retrieved December 22, 2008 from https://ecampus.phoenix.edu/secure/resource/resource.asp Internet Center for Management and Business Administration Inc, Business Knowledge Center, NetMBA.com 2002-2007 NetMBA.com, retrieved December 22, 2008 from http://www.netmba.com/econ/micro/cost/opportunity/ Slembeck, Tilman, Principles of Economics, October 1, 2006, retrieved December 22, 2008 from http://www.slembeck.ch/principles.html