How People Make Economic Decisions

Individual decision making is based on ten principles; four of the ten principles are people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, and people respond to incentives.   Purchasing a new vehicle encompasses all of these principles where one needs to compare the marginal benefits and the marginal costs.   In my experience of purchasing a new car and comparing the marginal benefits with the marginal costs, I compared a Toyota Matrix and a Kia Spectra 5.  

Fairleigh Dickinson University
How People Make Economic Decisions
Individual decision making in regards to economics includes trade-offs, giving something to get what you want, rational people thinking at the margin, and people responding to incentives.   People facing trade-offs requires a person to give up one thing to acquire another.   The cost of giving something to get what you want involves giving something of value now to reap a long term gain.   Rational people think at the margin and establish plans to accomplish specific goals while allowing the possibility for adjustment to their plan, (Mankiw, 2007).   Incentives are how many rational people base their decision making.   An incentive could cause a person to alter their original plan because the incentive could make more sense for their given situation.
Deciding the Marginal Benefits and Costs
Last year I was researching the automobile market to buy a new car.   The price of oil skyrocketed and my current vehicle at the time was an SUV getting about 17-20 mpg.   Earlier that year, I accepted a job that required me to drive 30 miles each way and I found myself spending a considerable amount of money on fuel.   Although, fuel economy was the main motivation for purchasing a new vehicle at that time, I also took into consideration what I was willing to sacrifice to purchase the car.   The budget for the new car purchase was no more than $15,000.00.   The car budget and the features...