People_Make_Economic_Decisions

How People Make Economic Decisions Glenda Linton ECO/212 August, 23,2010 Randy Weinerman How People Make Economic Decisions Individuals make economic decisions every day of their life. The manner in which these decisions are made is based on three principles. These principles are based on the some people are rational, most people respond to economic incentives and most individuals have optimal decisions that are made at the margin (Hubbard & O'Brien, 2006) . The first principle of the decision making is that people are rational and that they should know everything and be able to make the best decision. People that are rational will weigh the benefits and costs of a product before making a decision. An example would be if an consumer wants to purchase a laptop, they would compare each brand to see which one is the best for their needs (Hubbard & O'Brien, 2006) . The second principle people respond to economic incentives would be if a company is willing to take the steps needed to provide what the consumer needs. For instance, a hospital should be willing to provide the security needed for their organizations. They should be willing to have security at night when people are leaving and entering a hospital through a parking garage. This would let the consumers know that they are protected when they need to enter the hospital (Hubbard & O'Brien, 2006) . The third principle optimal decisions are made at the margin is when a consumer or an individual is deciding to open a business or save money for their child education. When parents are deciding to save money for their child’s college education, they would have to make the decisions as to whether to save the money or continue to enjoy the luxuries that they might want. A consumer that is considering opening a business, would need to make the decision of is it worth it to open a restaurant in this economy and they would have to look at the competition to decide if the decision is the best one (Hubbard & O'Brien, 2006) . When using the marginal benefits and costs an individual needs to make the right choices when deciding to purchase a product. I recently had to make the decision of whether to move into a bigger home or remain in a small one. I had to look at the different price ranges for a bigger home and make sure that it would provide what my family needed. The homes that I found were expensive so the marginal cost was outweighing the marginal benefits. In the end, I was able to find an older home that meet my cost and the benefits of the home were right for my family. The incentive of this home was that the owner offered me the opportunity to purchase the home at an later date. By having this option it helped me to make the decision that this home was right for my family and it allowed us to remain the same community that we had been in for years. The principle of economics can affect an individual’s decision making, interaction and the economy. Individuals need to be able to compare what they are shopping for in order to make the right decisions. The economy can affect how an individual makes these decisions, because of how slow it is in some areas. Individuals need to look at gas mileage, locations and other things when deciding on a car or a home. Consumers need to make sure if it is worth it to purchase that car or home or should they save their money if something were to happen to their jobs. Individuals in this economy sometimes will have to give up something in order to gain something. Reference Hubbard, R., & O'Brien, A. P. (2006). Economics (3rd ed.). Boston, MA: Prentice Hall.