How_People_Make_Economic_Decisions

How People Make Economic Decisions How People Make Economic Decisions * We use economics every day in our lives, possibly without even realizing it. The four principles of individual decision-making are tools people use to make decisions for the most mundane problems. Economics affects our interaction in society a good economy equals jobs and positions in the workforce * Trade-off is the idea of producing more of one good or service means producing less of another. Opportunity Cost is the cost of giving up the alternative of a good or service. With margins most decisions in life are made; “at the margin.” It refers to when a person decides to do a little more of one thing while giving up a little less of another. Incentives are “devices” used to entice consumers to purchase a good or services. An example of Incentives; if a retail store is has a certain video game on sale, the game is marked down $20, but if you buy the one that is on sale plus two more that are of equal value you will get a $20 gift card free. Without realizing it I compare marginal benefits and marginal costs every time I go shopping for groceries with my oldest daughter. She is an extremely picky eater and trying to find something she likes is always a negotiation of sorts. Take canned ravioli for an example, she always goes for the most expensive name brand, granted it is not that expensive but when you are on a budget then everything counts. I ask her if she would be willing to try something else, a lesser brand, we have had lesser brands before and she didn’t like them. We look at what the grocery store has and we decide on what to get, it is usually something in between the price range of the most expensive and the cheapest brands. By doing this we can purchase one or two more cans of ravioli that is the marginal benefit. The marginal cost is that we gave up the better brand. An incentive that could have led me to make a different decision is a sale, by reducing the price, even for a limited time and reducing it to close to the brand we would have purchased would have made me purchase the more expensive brand. Or if the store had the product as part of a bundle sale, say, if I purchased three 12 packs of soda and I could get three cans of ravioli and a few other items free. Decision-making is affected by economics when the consumer trades-off one thing for another. Consumers decide what is produced and what we will sacrifice to get it. Chess would be a good example of trade-off, during the game players willingly sacrifices pieces to gain better positions that would help them win the game. Economics dictates that we give up minor pieces to preserve major pieces. Incentives are another factor in decision-making with consumers, when beneficial incentives are introduced consumers are more willing to give up more than they normally would. Economics also affects our interaction with one another; time is a factor with everyone. A person’s time is a valuable commodity; it dictates how we interact with our friends and family. Interaction is also affected by the economy, when the economy is not at its best layoffs occur, and consumers don’t spend as much. Instead of being in the workforce producing goods and services a person is out looking for another position. The way the economy as a whole is affected by the principles of economics thru international and domestic trade allows individuals to specialize in an area they feel they will excel in. The standard of living in a country depends on its ability to produce goods and services. People who live in high-income countries have more televisions, cell phones, etc. Economics is much more than money; it is a science and a philosophy. Economics is one of the forces that run the world. We have seen how it helps us make decisions, how it is involved in society and how our interaction in society is affected.