How People Make Economic Decisions Eco 212
How People Make Economic Decisions
The Purchase of Two New Cars
In this paper, I will address Mankiw’s four principles of individual decision making; provide an example of a decision in which I compare the marginal benefits and marginal costs associated with the decision. I will discuss the marginal benefits and marginal costs associated with the decision and finally, the incentives that could have led me to make a different decision. Mankiw’s four principles of individual decision making are the following.
Principle 1: People face trade-offs. This principle basically states that when we make economic decisions, we usually have to give up something we like to get something else we like; it’s like a trade off. It’s usually but not limited to time and money (Principles of Economics, 4e, N. Gregory Mankiw).
Principle 2: The cost of something is what you give up to get it. This principle talks about the trade offs we make and how our decision making process requires comparing costs, benefits and alternative courses of action (Principles of Economics, 4e, N. Gregory Mankiw).
Principle 3: Rational people think at the margin. This principle talks about how rational people systematically and purposefully do the best they can to achieve their objectives. Rational people understand that decisions in life are not always going to be black and white; rather, they will face grey areas that need special attention in order to have the best possible outcome (Principles of Economics, 4e, N. Gregory Mankiw).
Principle 4: People respond to incentives. This Principle is based on incentives. The prospect of punishment or reward induces a person to act. Incentives play an integral role in the decision making process of people (Principles of Economics, 4e, N. Gregory Mankiw).
The decision I will discuss is buying 2 new cars for our family. My first purchase of a new car was a small Lexus IS300. I have been an avid fan of the brand not only because of the quality of
The Purchase of Two New Cars
In this paper, I will address Mankiw’s four principles of individual decision making; provide an example of a decision in which I compare the marginal benefits and marginal costs associated with the decision. I will discuss the marginal benefits and marginal costs associated with the decision and finally, the incentives that could have led me to make a different decision. Mankiw’s four principles of individual decision making are the following.
Principle 1: People face trade-offs. This principle basically states that when we make economic decisions, we usually have to give up something we like to get something else we like; it’s like a trade off. It’s usually but not limited to time and money (Principles of Economics, 4e, N. Gregory Mankiw).
Principle 2: The cost of something is what you give up to get it. This principle talks about the trade offs we make and how our decision making process requires comparing costs, benefits and alternative courses of action (Principles of Economics, 4e, N. Gregory Mankiw).
Principle 3: Rational people think at the margin. This principle talks about how rational people systematically and purposefully do the best they can to achieve their objectives. Rational people understand that decisions in life are not always going to be black and white; rather, they will face grey areas that need special attention in order to have the best possible outcome (Principles of Economics, 4e, N. Gregory Mankiw).
Principle 4: People respond to incentives. This Principle is based on incentives. The prospect of punishment or reward induces a person to act. Incentives play an integral role in the decision making process of people (Principles of Economics, 4e, N. Gregory Mankiw).
The decision I will discuss is buying 2 new cars for our family. My first purchase of a new car was a small Lexus IS300. I have been an avid fan of the brand not only because of the quality of
References: 9780324832945, Principles of Economics, 4e, N. Gregory Mankiw - © Cengage McGrath Lexus of Chicago