How People Make Economic Decisions Essay

636 WordsJul 19, 20113 Pages
How People Make Economic Decisions ECO/212 Khanthary Singnhoth University of Phoenix Robert Marsellis July 07, 2011 “Rational individuals weigh the benefits and costs of each action and choose an action only if the benefits outweigh the costs,” (Hubbard and O’Brien 20). This concept to many economists is known as the principles of decision-making. The main focus of this paper is to evaluate how individual decision-making affects an individual’s decision economically based on marginal costs and benefits and the incentives behind an individual’s decision. According to the principles of decision-making, there are four economic principles in individual decision-making. The first of the four is people make tradeoffs. What this means is as an individual something the individual likes may need to be given up to obtain another item, which the individual likes even more (http://depts.alverno.edu 2011). The second principle is that people choose one thing they give up something else. This pretty much sums up the first principle. This principle speaks of opportunity cost, which is the term used to represent the item in which the individual gives up an item to obtain the other item. The third principle is rational people think at the margin. When rational people think at the margin they only make that decision if and only if the marginal benefit of the action exceeds the marginal costs. Last, people respond to incentives. This is the final principle in individual decision-making. This principle is referring to an individual’s decision is made based on costs and benefits and if there is an unexpected change in the costs or benefits, then the decision made may be affected by this unexpected change. For example, my decision to return to college to complete my Bachelors degree was a decision made based on marginal costs and marginal benefits. I was
Open Document