How People Make Economic Decision
Many people make economic decisions every day, and he or she based these decisions on supply and demand. “Economics are the study of the choices people make to attain their goals, given their scarce resource” (Hubbard & O’Brien, 2010, p. 4). According to Hubbard and O’Brien, “the three key economic ideas are people are rational, people respond to incentives, and optimal decisions are made at the margin” (2010). In this paper, the author will briefly explain the principles of individual decision-making and provide examples, the marginal benefits and marginal cost associated with the decision, what incentives can lead to make the decision, explain how the principles of economics relate to decision making, interaction and the workings of the economy, and explain how economic interactions are affected by the type of economic system.
“Economists generally assume that people are rational” (Hubbard & O’Brien, 2010, p. 5). Though economist believes these assumptions, it does not mean he or she believes each person knows everything and always makes the best decision. A rational individual analyzes all of the benefits and cost of each actions and he or she will decide whether or not it is an advantage. For example, a student. A student must give spending time with her family to earn a degree. By giving up something, the student will result in succeeding in life because of her degree; therefore, it is an advantage for the student. “Human beings act from a variety of motives, including religious beliefs, envy, and compassion. Economist emphasize that consumers and firms consistently respond to economic incentives” Hubbard & O’Brien, 2010, p. 5). For example, donating to a church or homeless shelters. It does not matter where a person donates his or her money, it matters when that individuals files taxes and uses these donations as a...