Make Economic Decisions

When making economic decisions there are four principles individuals can use to assist with their decision-making. I will provide an example to compare the marginal benefits to the marginal costs. Different incentives can influence a decision and produce different outcomes. These principles of economics influence decisions everyone makes, which in turn affects the entire economy.

The first principle to assist the decision making process is what trade-offs people face (Mankiw, 2007). To get one thing in life usually means giving up another thing; can’t have your pie and eat it too. The next principle is the cost of something is what you give up to get it (Mankiw, 2007). Evaluate the time and cost to re-landscape a yard, the initial cost may seem quite high and the amount of time spent to landscape requires many hours, but when the house is appraised, the potential for increased value is highly possible. Another principle is the rational people think at the margin (Mankiw, 2007). Individuals make small adjustments to a plan to achieve their desired results. The last principle of decision-making is how people respond to incentives (Mankiw, 2007). Incentives influence how an individual will respond or act; if prices increase for a particular item, individuals are less inclined to purchase that item. When making decisions individuals use these principals to compare marginal benefits to marginal costs.

Recently, my daughter was involved in a rollover accident and we had to compare the marginal benefits and costs associated with buying another vehicle. The rollover totaled her vehicle but she walked away from the accident with only one minor cut due to the safety features of the car. We looked at some different cars and the cost of these vehicles. With my daughter traveling back and forth between college on the weekends, I wanted a vehicle that would provide a safe trip. We could have bought a less costly vehicle but we bought a vehicle of the same brand...