Personal Economic Decisions
How People Make Economic Decisions
People make economic decisions on a daily basis, from choosing to go to the grocery store and cook dinner or going out to eat. While in the general scheme of things this is a relatively small decision to make it still can have impact on the economy. Yet a decision for a family to have a child is more of a major decision and has far more of an impact on the economy then a dinner decision. There are four basic principles to economic decision making and in the following I will list and explain these. I will also provide and an example of a decision that I have made in my personal experiences and what impact that has had or could have had if I had chosen to make a different decision. While each decision we make may not have an impact on the economy, the economy certainly comes into consideration when making any type of financial decision. The Four Principles of Economics
Principle One: People Face Trade Offs
“The first lesson about making decisions is summarized in the adage “There is no such thing as a free lunch.” (Mankiw, 2007, p. 4). In every decision that we make there is a certain give and a certain take. Using the example of a dinner decision let’s look at the give and take. If you choose to go to the grocery store you have to give time and energy into cooking and shopping and the trade off is less time and energy for other projects or things that may be important to you. Whereas if you choose to go out to eat, you save the time and energy are able to utilize the additional time and energy in another way. Granted this is simplified for the purposes of this example the theory is the same. In each and every economic decision we make for ourselves we face a trade off of this decision. The basic trade off of most decisions comes simply down to efficiency and equity. Principle Two: The Cost of Something Is What You Give Up to Get It
In the same...