How People Make Economic Decisions Essay

The next concept is “Decisions are made at the margin” this meant that individuals wanted to get the most out their resources. You want to have most benefits out your actions. One thing that the authors put emphasis on is the fact that all

People make economic decisions on a daily basis, from choosing to go to the grocery store and cook dinner or going out to eat. While in the general scheme of things this is a relatively small decision to make it still can have impact on the economy. Yet a decision for a family to have a child is more of a major decision and has far more of an impact on the economy then a dinner decision. There are four basic principles to economic decision making and in the following I will list and explain these. I will also provide and an example of a decision that I have made in my personal experiences and what impact that has had or could have had

thinking at the margin: deciding whether to do or use one additional unit of some resource.

Claim:The most important factor in making decisions is what someone gains from the decision. People only do things because of the rewards they gain, which may not always be positive.

For the second assumption, because all human are rational individuals who want to make their consumption choices maximize their happiness or utility, they will consider not only the cost of their actions, but also the opportunity cost of their action (Gans, J., King, S., Stonecash, R. E., Byford, M., Libich, J., & Gregory, M. N., 2014). Moreover, they will also consider all the consequences of their actions.

For example, individuals give up time and/or money. The decision to watch a movie or study for a test. The decision to buy a milkshake or save up for a new computer.

As individuals and as a society we are constantly making decisions. Economics teach us that we have to make choices because resources are limited. For every choice we make there is something we must give up, that which we gave up is known as opportunity cost. In general individuals act to make themselves as well off as possible, (Wheelan, pg.6). Robert Kiyosaki an American businessman says that, for him making himself as well of as possible means thinking rationally as opposed to emotionally. Our emotions can sometimes sway us from making intelligent decisions, often out of fear.

The principle of utility is a concept that was primarily introduced academically by philosopher Jeremy Bentham and later confounded upon to become what is known as the “Greatest Happiness Principle.” Bentham focuses on the

When studying economics, one quickly learns there is a market for everything and the market drives the economy. “A market is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade,” (Hubbard & O’Brien, 2010, p. 4). In an effort to answer the production questions of what, how, and who, as they relate to goods and services, societies arrange their economies in two primary ways. The first way is the centrally planned economy where the government chooses the distribution method for economic resources; the second way is the market economy where households and firms interacting in markets decide the distribution of economic resources, (Hubbard & O’Brien, 2010). The former Soviet Union was the most recognized centrally planned economy; however, Cuba and North Korea’s economies also operate in this manner. The United

“The study of incentives is how people get what they want, or need, especially when other people want or need the same thing.” (16) An incentive is simply a means of urging people to do more of a good thing and less of a bad (17). An interesting concept the author points out is “Morality, represents the way that people would like the world to work-whereas economics represents how it actually does work” (11). The authors several times oddly bring up that there is no unifying theme to the book, giving the impression the book is not well thought out. Regardless, there are some things that tie the unusual examples together, one being the theory of incentives as being the motivator. The other unifying thread is that conventional wisdom is often wrong, that when looking at situations, layers need to be peeled off and knowing what to measure and how to measure it allows for better understanding (12-13).

(c) The inverse demand function will give us the equilibrium price by inputting the equilibrium output

People try to be rational. “It means that economists assume that consumers and firms use all available information as they act to achieve their goals. Rational

Although the people of North and South Korea speak the same language, they have many different ideas and cultures that have developed after the two countries split apart. The market economy of South Korea has done a lot to improve the overall economy of the country, and the gross national product has been on the rise. The economy of North Korea has had many challenges, largely due to the self-reliant and closed economic system that they use. Overall, the government and economy of South Korea has been more prosperous and successful than North Korea. Much of this is due to the fact that in North Korea, they have a completely closed and centrally planned economic system which tends to inhibit their growth. The fact

My independent research in the field started with my curious interest in the processes of how decisions made by individuals and governments, what are the main factors encouraged them to choose particular decision over other options and the outcomes of those decisions. Then, I started to read theories of great Economists, such as, Keynes, Freidman , Devenport, Kinnerly and Mason who wrote on decision-making and the ability of individual to interpret the information. Additionally, there were theories by De Bondt , Clark , Tversky and Kehnman who argued that human psychology is interconnected with economics which cannot be ignored. Learning those theories and comparing them with the real life happenings, my enthusiasm to get deeper insights of economics increased. Encouraged by this, I have compiled

Making a decision on the market is understanding your trade-offs and making a decision using rational behavior.