Four Principles of Individual Decision Making

Topics: Decision making, Economics, Cost Pages: 2 (620 words) Published: November 19, 2011
Running head: Four Principles of Individual Decision Making

Four Principles of Individual Decision Making
University of Phoenix

Four Principles of Individual Decision Making
The first principle of Economics is that people face trade-offs (Mankin, 2007). Making decisions requires trading off one goal against another. The first lesson about making decisions is that to get to one goal you must give something to get something, it is a trade. An example is that in order to go to work people must find a way there. Some people may walk, ride their bike, take the bus or just drive their car. The trade off in order to get there people must make a decision on what to do. People will decide on buying a bus pass or filling the car up with gas to get to their destination. The end result is going to work people make money to spend on other things. The second principle of Economics is the cost of something is what you give up to get it (Mankin, 2007). Again, going to work is a good example. Giving up personal time to work forty hours a week to receive a paycheck allows people to open their options on how they want to live, however, not everyone is going to live the same way. Each person may face a trade off in pay due to experience and education. The third principle of Economics is rational people think at the margin (Mankin, 2007). According to Mankin (2007), rational people systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have. Basically, people adjust to the benefits and cost involved to achieve the outcome they desire. The forth principle of Economics is people respond to incentives (Mankin, 2007). “An incentive is something (such as the prospect of a punishment or a reward) that induces a person to act” (Mankin, 2007, p. 7). “Because rational people make decisions by comparing costs and benefits, they respond to incentives” (Mankin, 2007, p. 7). Car dealers use incentives to get people to buy...
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