How People Make Economic Decisions
November 21, 2010
There are three ways people make economic decisions. First there are those that make these decisions rationally or face the tradeoff. They weigh the benefits against the cost. What is being gained as opposed to what is being given up. An example would be the cost of buying a new vacuum from Wal-Mart or Sears. Which one will give the most benefit for the price?
The second way people make economic decisions is by responding to economic incentives. Most everyone will respond to a deal. The benefit outweighs the cost. If you can buy a new car five thousand dollars off the manufactures suggested retail price you will most likely ...view middle of the document...
(Consumer Choice, para. 2).
I can remember buying shoes at one of those outlet stores. I had a budget of one hundred fifty dollars. I wanted to get some really good shoes that could be worn to work. I am a firm believer that the more expensive the shoe the longer they will last. I believe this to be true as it has been true for me. The prices at the store were very low so I wondered if I could get two pair for what I was willing to spend. I spent the next hour shopping for two pair that fit within my budget. I got close but could only get to around two hundred for two pair. I made the decision to buy two pair for as for me the shoes will more than pay for themselves. I will have two pair of shoes that will last me for at least a couple of years. The marginal benefit outweighed the marginal cost to me.
Overall, economics play a big part in societies decision making processes. If you think about it we use the three principles every day. We are rational about the decisions we make. We look for incentives to buy or do something. We also make these economic decisions at the margin. Our government makes economic decisions that are in the best interest of the country. Sometimes it is better to be more rational than others and at other times it takes weighing the benefits against the cost. The biggest decision they make is regarding war. They would be wrong to not make a rational decision about the possibility of our troops winning and bringing peace or not winning and losing lives.
(n.d.). Marginal Benefit and Marginal Cost. Retrieved on November 18, 2010 from http://www.investopedia.com/study-guide/cfa-exam/level-1/microeconomics/cfa5.asp