How People Make Economic Decision
How People Make Economic Decision Joylyn Mendoza-Miranda ECO/212 James Ford How People Make Economic Decision Many people make economic decisions every day, and he or she based these decisions on supply and demand. “Economics are the study of the choices people make to attain their goals, given their scarce resource” (Hubbard & O’Brien, 2010, p. 4). According to Hubbard and O’Brien, “the three key economic ideas are people are rational, people respond to incentives, and optimal decisions are made at the margin” (2010).
In this paper, the author will briefly explain the principles of individual decision-making and provide examples, the marginal benefits and marginal cost associated with the decision, what incentives can lead to make the decision, explain how the principles of economics relate to decision making, interaction and the workings of the economy, and explain how economic interactions are affected by the type of economic system. “Economists generally assume that people are rational” (Hubbard & O’Brien, 2010, p. 5).
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Though economist believes these assumptions, it does not mean he or she believes each person knows everything and always makes the best decision. A rational individual analyzes all of the benefits and cost of each actions and he or she will decide whether or not it is an advantage. For example, a student. A student must give spending time with her family to earn a degree. By giving up something, the student will result in succeeding in life because of her degree; therefore, it is an advantage for the student. Human beings act from a variety of motives, including religious beliefs, envy, and compassion. Economist emphasize that consumers and firms consistently respond to economic incentives” Hubbard & O’Brien, 2010, p. 5). For example, donating to a church or homeless shelters. It does not matter where a person donates his or her money, it matters when that individuals files taxes and uses these donations as a tax write-offs. According to Hubbard and O’Brien, “some decisions are all or nothing” (2010). The best economic decisions are decided at the verge of the situation.
For example, if an individual sells his or her product at the best price, chances are is the highest in the market. Marginal benefits are benefits that a person gains when he or she acts on discrete action of the margin. Marginal costs are losses. For example, if a person is not in the best shape possible, then he or she will have to consider the marginal cost and benefits of exercising. On the other hand, the out-of-shape individual can receive credit for working out for one day, it may be challenging, but it is up for this person to decide whether the marginal benefit is greater.
A market economy is where the decision is where the decision of household and firms interacting in market allocated in economic resources. In a centrally planned economy, most economic decisions are made by politics. In a free market system, many people buy and sell goods and services from one another. In a planned economy, people are often told where to work and what to products and services to produce. In conclusion, people are faced with making a decision to make him or her happy.
These decisions are based on the supply and demand and abiding by the principles of decision-making. A rational individual analyzes all of the benefits and cost of each actions and he or she will decide whether or not it is an advantage. Marginal benefits are benefits that a person gains. It is often difficult to answer how people make economic decisions; however, decisions must be made to satisfy one’s need. References Hubbard, R. & O’Brien, A. (2010). Economics (3rd ed. ). Boston, MA: Pearson Hall