Compare a Necessity and Commodity Product, Identifying the Availability of Sbstitutions for Coffe
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How People Make Economic Decisions
Juan D. Agramonte
ECO/212 Principles of Economics
August 4, 2010
Instructor: Robert Waremburg
How People Make Economic Decisions
Marginal costs and benefits are two important concepts that govern economics. Marginal cost is important in determining the need to adjust the rate of production. Whereas, marginal benefits are considered as the gain that will be earned if the rate of production will be adjusted.
However, both marginal costs and benefits are not mere economic concepts; they are also prevalent in the practical activities of producers and consumers. They play an important role in the decision making of the people. Naturally, the decisions we have always have something to do with the benefits that we gain from something. A simple illustration of this is the basic questions we have before we purchase an item such as “Will it be cheaper if I buy one more thing?” “Will it be cheaper if we produce another item?” “What are the advantages of producing another item?” Technically, people decide based on their reasons.
As much as economics is important in decision-making, decision making is also important in economics because for every decision made, both risks and advantages are involved. There are four important concepts that people consider when deciding on something (Mankiw, 2007). These are the four economic principles.
The first economic principle involved in decision-making is “trade offs”. People constantly face trade offs in almost all their economic transactions. In order to get something we want, there are some things that need to be sacrificed that are also valuable to them. Second principle is almost related to trade off; it says “the thing is worth as much as the price of another you’ll give up for it”. Obviously, we want a fair trade. Second principle does not only refer to the monetary aspect of a decision; it also has something to do with all the opportunity costs involved. Third...
Juan D. Agramonte
ECO/212 Principles of Economics
August 4, 2010
Instructor: Robert Waremburg
How People Make Economic Decisions
Marginal costs and benefits are two important concepts that govern economics. Marginal cost is important in determining the need to adjust the rate of production. Whereas, marginal benefits are considered as the gain that will be earned if the rate of production will be adjusted.
However, both marginal costs and benefits are not mere economic concepts; they are also prevalent in the practical activities of producers and consumers. They play an important role in the decision making of the people. Naturally, the decisions we have always have something to do with the benefits that we gain from something. A simple illustration of this is the basic questions we have before we purchase an item such as “Will it be cheaper if I buy one more thing?” “Will it be cheaper if we produce another item?” “What are the advantages of producing another item?” Technically, people decide based on their reasons.
As much as economics is important in decision-making, decision making is also important in economics because for every decision made, both risks and advantages are involved. There are four important concepts that people consider when deciding on something (Mankiw, 2007). These are the four economic principles.
The first economic principle involved in decision-making is “trade offs”. People constantly face trade offs in almost all their economic transactions. In order to get something we want, there are some things that need to be sacrificed that are also valuable to them. Second principle is almost related to trade off; it says “the thing is worth as much as the price of another you’ll give up for it”. Obviously, we want a fair trade. Second principle does not only refer to the monetary aspect of a decision; it also has something to do with all the opportunity costs involved. Third...