How People Make Economic Decisions free essay sample

Society must decide how to limit resources and how to distribute them among consumers, which means to have one thing a person likes he or she must give up another thing they like. The next principle: when a person chooses one thing, he or she must give up something else. This principle is the decision a person has to make prior to a purchase. He or she must decide whether the dollar intended to be spent can or cannot be used on another necessity. Next: rational people think at the margin; a person’s rational willingness to purchase something is on the marginal benefit the purchase will bring to the person. Finally people respond to incentives; retailers often use incentives to get consumers to spend money, encouraging them to spend now, is to save, and earn rewards later. There are three basic economic ideas that rationalize how people make decisions, and they are; people are rational, people respond to economic incentives, and optimal decisions are made at the margin (Hubbard and O’Brien 2013). We will write a custom essay sample on How People Make Economic Decisions or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Economists believes that people as well as firms uses the information they can to obtain their goal, they weigh the costs and benefits and chooses the action or benefit that out weighs the cost. Different motives cause people to act on economic incentives; envy, compassion, and religious belief are a few of these motives. Last October I had to make the decision to buy medication for chemo, or pay the light bill. Money was scarce, and the medication was very necessary, so I decided to buy the medication. The lights were cut off two days later. The incentive of keeping the lights could have led to me making a different decision; however, my life is more important. The principles of economics relating to decision making is basically reflect the laws of economics, such as supply, and demand. As mentioned earlier, people respond to incentives, makes trade-offs, and weigh cost against benefits. As people trade their utilities increases; markets make it easier to trade, and with government intervention, some trading can be controlled. When produce goods and services are at an all-time high, living standards rises. As the government prints too much money, prices will rise, and people will face trade-offs between unemployment and inflation, these actions are known as macro behavior. There are mathematical principles in economics as well such as microeconomics; as supply falls, prices rise, and as demand falls, prices fall. The economic systems consist of four basic systems, and three of these systems are the market economy, the planned economy, and the mixed economy. The market economy; individuals makes his or her economic decisions, such as what job, and training to take, how to invest their resources, what to produce such as goods, and services and what to consume. The planned economy is run by the government; it decides how to dispense resources, adjusts prices, and wages and can determine what job a person may do. The mixed economy is where the market and individuals make the economic decisions; however, the government also plays an important part in maintaining resources. Finally, consumers, business managers, and government officials make decisions every day. These decisions make the economy; people make choices about how to spend his or her money to meet their goals and attain the resources needed to reach these goals. However, some resources are scarce and people have to make trade-offs to meet his or her demand, which means giving up one thing he or she likes for another. References Button, A. (1999-2013). Principles of Economics with a Guide to critical thinking. Retrieved from http://www. ehow. com/info_8035299_principle=economics-guide-critical-thinking. html Hubbard, R. G. , OBrien, A. P. (2013). Economics (4th Ed. ). Boston, MA: Pearson. Power, M. (1999-2013). Four Principles of Individual