Final Project

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Final Project: A New House-Decision
Tharessa Morales
XECO/212
11/17/2012
John McGee

Final Project: A New House Decision
When the time comes in a person’s life to purchase a new home, they have accepted a decision that could be life changing. This decision can be difficult and is influenced by several different factors, such as the stability of the economy, the markets and types of goods that affect supply and demand, and the fiscal policies that could have an effect on the housing market. This decision has become even more difficult in recent times due to a less than favorable economy. Before a decision can be implemented, there must be some research and investigation done on the many factors that influence an investment as large as this. In order for a consumer to decide whether or not now is the time to purchase a new home, there are 10 basic principles of economics that we can follow. By learning and realizing these principles, you will have the ability to make one of the largest investments that a consumer could make in a lifetime. Even though all of these principles relate to the decision of purchasing a new home, there are some that have a direct impact and influence on an investment this large. The first principle that should be considered is that people face trade-offs. In order for someone to get something they want they usually have to give up something else. If purchasing a new home seems to be the decision that is best for the consumer, they may have to give up things such as family vacations and excessive spending on clothing or food. All factors of a trade-off could be considered by looking at the pros and cons of each situation. For instance, does more space, private living or the benefit of paying on something you will eventually own justify the cost of added utilities and maintenance of a home. There are other considerations to be taken as well, such as property and house taxes that would not be present in a rental agreement. This is where the cost of something is what you give up to get it. The opportunity cost is what we give up in order to get something we want. It is important when making a decision that we realize it may be necessary to maintain our current vehicle rather than purchasing a new one. Decisions must be made on what action can be taken that will be most beneficial to you and the family now and in the future. (Mankiw, 2007) Incentives tend to play a central role in how people make decisions because they compare the costs versus the benefits of an item. They attract people to act upon what is being offered. For example, when making the decision to purchase a new home you might act upon certain characteristics of it, such as large living area, extra property, outdoor pool, or exceptionally low interest rates and mortgage payments. These are all types of incentives that could encourage a consumer to leave an easier life of monthly rent and fast food to engage in a lifelong commitment of mortgage payments and maintenance of a home. The government can sometimes affect these incentives through the rise of taxes or prices of materials to build homes. Some of these materials may be imported and if government policies have affected the supply and demand of the marketplace, then the economy is going to feel the pressure. In some cases certain policies have caused the marketplace to crash which resulted in people losing or having to sell their homes for less than it is worth. This could be an advantage to the consumer who had saved and was prepared for economic problems. The stability of the economy plays the biggest role in a decision for a large purchase. People want to know that they will be safe in the choice they make. They want to know that in 10 or 20 years they will still have the ability to pay for their purchase. It is important to consider whether or not the investment will be worth all the trade-offs in the long run. Considerations such as job and health stability, money saved...
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