Economics Essay

1040 WordsOct 15, 20135 Pages
How People Make Economic Decisions Amy Palacios April 21, 2013 ECO/212 Reynaldo Caratao How People Make Economic Decisions This paper will focus on the role of economics on decision-making. It will further explore how every individual applies both consciously and unconsciously the economic principles as they make decisions in their practical life. To further strengthen the concept presented, the paper will also include examples of decisions that are based on marginal benefits and marginal cost. Incentives are also seen as a powerful influence on the decisions of the people. Finally, the paper will establish the relationship between the simple decisions of the people to the condition of the economic systems and the worldwide economy in general. Principles There are various economic principles that can aptly be applied to how a person makes a decision. First principle deals with the risks involved in every decision. These principles assume that an individual would only make a decision if there is a reassurance that the risks involved are manageable. Basically, every person has limitations, and it would be highly impractical to make decision without knowing if he or she can face the consequences. Next principle is about matching the resources with the risks that will be taken. Relevant to principle one, a person should first consider what resources are available, and assess whether it is enough to sustain the decision even with the presence of the decision risks. Taking risks without considering the available resources can only lead to losing all the resources to one simple decision. The third principle states that an individual should consider the profits to be earned from a certain risk, and if there are none, then the risk is not worth taking at all. Finally, the last economic principle deals with the level of confidence of a

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