How People Make Economic Decisions

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How People Make Economic Decisions Selven R. Jones ECO/212 July 14,2010 Daniel Chavez Abstract Everyday we are forced to make decisions. Some decisions are easy to make while others are only made after careful consideration. The choices that involve the most thought tend to be the ones with the most financial implications. One such decision is where one should live. Let us journey with someone in the midst of such a decision. How People Make Economic Decisions It is midnight he awakes drenched in sweat. The apartment that he lives in has what is known as a “swap” cooler instead of refrigerated air conditioning. He lives in El Paso, Texas where summertime evening temperatures are commonly known to be in the ninety degree range. In a half asleep state he staggers to restroom to turn on a light switch that refuses to illuminate. The question that comes to his mind is, why do I pay rent here? Then he also remembers that his lease is expiring soon. This leaves our frustrated renter with a decision does he live in sub-standard conditions or does he move? Authors Glenn Hubbard and Anthony Patrick O’Brien in their book “Economics” present three key economic ideas that aid our renter. Those ideas are: People are rational, People respond to economic incentives, and Optimal decisions are made at margin. People are Rational Shane (1999-2010), “Economists assume that people are rational decision-makers who rank their preferences and pursue those that will provide the highest level of satisfaction, or utility. (Introduction to Principles of Economics, para. 6). The situation that our renter encounters finds himself is one where it would have been easy to let emotions control the moment. That reaction may have caused a lashing out the apartment management personnel. As morning arrives, the renter begins to weight his options. People Respond to

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