How People Make Economic Decisions Essay

612 WordsOct 10, 20113 Pages
How People Make Economic Decisions 6/06/2011 How People Make Economic Decisions Individuals make decisions each day when they decide what items that they purchase and what services to pay for. Decisions consumers make depend on many factors where options are weighed and substitutes compared to one another based on the marginal benefit and the marginal costs of the options they hold. Recently, I needed to make a decision concerning what television set I wanted to purchase. My options were narrowed down to the choice between two televisions- “A,” a 42” HD LCD for $400.00, or “B,” a 40” HD LCD with Google internet for $650.00. The marginal cost, or the additional cost I would incur for purchasing television “A” (when compared to “B”) is losing the internet service and a total of $400.00 and the marginal benefit is the size of an added two inches. Television “B” owns a marginal cost of the loss of two inches and the extra $250.00, and a marginal benefit is the internet capabilities. When weighing this decision I felt that the marginal benefit of the internet capabilities outweighs the extra $250.00 and two inch loss and I went with television “B.” Individuals make decisions often like this without knowing as they shop and compare every day. (Hubbard & O’Brien, 2010). Our economy works as a market of buyers (consumers) and sellers exchanging goods and services. The basic principles are consistent through the economy as a whole- that marginal costs and benefits will be taken into consideration by consumers to make a decision, that consumers are going to make rational choices, and that individuals will respond to incentives. As these principles are put into play, the field is one large economy made up of smaller ones. An economy- or exchange of goods and services can be of three different types. In a market economy the consumers are
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