Individual decision making is either you do, or you do not. Most people are rational beings basing their decisions on a formula, benefits versus cost. Are the benefits of buying a $1000 television worth it? Are the marginal benefits worth the marginal cost?
Just this morning, I was faced with such a scenario. I was invited over to a friend’s house to try a new video game. I did not go, however, because I knew that I had to read several chapters for my class and write a paper. The benefits were that I would have some time to hang out with my friends and enjoy some much needed free time. The cost would’ve been that I could have not gotten all of my reading done and possibly been late on my assignment. My rational thought was that I would spend the day doing my reading and assignment and then get some free time later. Taking care of my responsibilities now would allow me to enjoy my free time later knowing that I had everything else, which was important, finished. Rationally, I would not have made a different decision.
Economists have created an economic model that almost all businesses, government policy makers and entrepreneurs base their decisions on. Using these models, these people make their decisions based on how that decision will affect the economy. These models are for by economists based on analyses which are composed of: a hypothesis, assumptions, and simplifying. Analyses are done between consumers and businesses and how the two interact with each other. Will consumers buy certain products from these businesses? This analysis also includes assumptions that consumers will buy products to maximize their own profits. These assumptions are somewhat simplified and are not always accurate or do not apply to all consumers. This goes back to the first of the three economic ideas: people are rational.
Each economy has three problems to solve:
1. What will be produced?
2. How will the...