Economic Decision Making

Economic Decision Making

Today’s economy is driven by individuals and the decisions that they make. Wants and desires will outweigh the means we have to attain goods and services. This concept of scarcity requires us to make choices based on our perception of what is beneficial to ourselves. Economists believe that people, being rational, will respond to economic incentives and make small choices improving their overall situation (Hubbard & O'Brien, 2010). Basically, that people will tend to maximize the benefit of their choices while minimizing the cost or effort required carrying them out.

Marginal Analysis is the term used to describe the weighing of one’s options in terms of cost and benefit. I was faced with the decision a few years ago to either keep my sports car, or purchase something a little more family-friendly. I did not have children at the time, but I was planning to in the future. My car was ready for some long overdue and expensive maintenance, and I decided to go ahead and trade it in on my minivan. There wasn’t much difference the price, maybe forty dollars a month more for the minivan. At the time, I felt that I needed to prepare myself for the future eventualities of children and I didn’t see the sense in spending all that money on maintenance for a car that I would probably get rid of in a year anyways. My decision might have cost me a bit more money in the long run, but it was worth it for me to have my peace of mind when later that year, I found out that our family would indeed be expanding. It is possible that had insurance been cheaper for my car, or had it not needed new tires, I would have kept it and made it work for a while longer, regardless of whether or not a baby was coming. The way it worked out, though, I was able to get used to my new payment schedules and such before the baby came, and that was a relief to not have to deal with that on top of all of the adjustments that were already being made in my life....