How_People_Make_Economic_Decisions

Four principles of individual decision making are, 1) People Face Trade-offs, Getting one thing that we like and giving up something we like. 2) The Cost of Something Is What You go to college you’ll have a better life and career, but how much will it cost for you to go' 3) Rational People Think at the Margin. Doing the best they can to achieve their goals, given the opportunities they have. 4) People Respond to Incentives or punishment or a reward that induces a person to act (Mankiw, 2007). Three years ago I went shopping for a computer. I was looking for a computer that was durable as well as inexpensive. As I browsed around the store, I came across a laptop that seemed to have the programs I was looking for as well as the price range. My Fiancé insisted that I wait and get a more expensive laptop at a later date, but because I thought I needed it right away I purchased it that day. A year later, after I downloaded a few files and added programs to the laptop it began to work extremely slow. After installing virus protectors and erasing files, it still didn’t work as well as it should have, considering it was only a year old. Later that year I went shopping for laptops again, but this time I knew not to get one that was cheaper but one that was durable and had more memory. The marginal benefit of the decision is most companies sell items that not as long-lasting as they should be so people will continue to shop for new items. The marginal cost of the decision would have been to wait a few more weeks to get a more expensive laptop with better qualities so would not have had to purchase another one so soon. An incentive that could have led me to make a different decision would have been a salesperson who had experienced a similar situation and the honesty to let me know what I was not getting the best brand name laptop. Another incentive would have been purchasing the extra warranty on the laptop so I didn’t have to pay for a new laptop. The principles of economics affect decision making every day. When we don’t know we are using economics we are. We make economical decisions daily by using these four principles. I use principle one by giving up TV time to study and do homework assignments. Principle two is used by college students who have to choose to leave their family and friends to pursue their education. Principle three could be used by a retail salesman trying to negotiate with buyers to sell items. Principle four is used daily by children and students by knowing who they are not supposed to do certain things because of the incentive in return. Whether we realize or not economics has a huge part of our lives. References Mankiw,N.G. (2007). Principles of economics (4th ed.). Mason, OH: Cengage Learning.