Purchasing a House and the Ten Principles of Economics

Topics: Inflation, Economics, Flipism Pages: 4 (1785 words) Published: September 25, 2010
The decision to buy a home is one that cannot be entered into lightly. Experts say that a home purchase is one of the most important and significant decisions a person will make in their lifetime. Added with a new baby on the way, the decision becomes much more important. There are many factors that will affect one’s decision to buy a home. Many individuals make the decision to buy a home without considering some factors. This can create a negative situation beyond the individual buyer his or herself as we learned recently. Careful consideration should be made by examining the entire situation.

Many of the Ten Principles of Economics apply to the purchase of a new home. The first principle, which states that people face trade-offs, is the first principle that applies. The reason this applies to this situation is that in order to buy a home a person may not have the money to go out to eat as often or go on trips as much because they have more of a responsibility to make a mortgage payment each month. If they payment is not made then there is a much larger consequence than if the rent payment is not made (Mankiw, n.d.). The next principle that applies would be number two, which states that the cost of something is what you give up to get it. This principle applies because although a person may make a sacrifice in order to purchase a home and make the mortgage payment, the benefit is worth it! Instead of putting money in someone else’s pocket by paying rent, you are building equity and investing in something of your own. This will help boost your credit and make the payment one makes to pay the mortgage more fulfilling than paying the rent to the landlord (Mankiw, n.d.). Principle three can also apply to buying new home. This principle states that rational people think at the margin. Simply stated, this principle applies because most potential homebuyers are rational thinkers. Making a rational decision to buy a home could mean that the...

References: Investopedia ULC. (2010). Investopedia. Retrieved August 28, 2010 from http://www.investopedia.com/study-guide/cfa-exam/level-1/microeconomics/cfa5.asp
Mankiw, N. G. (n.d.). Principles of Economics. [University of Phoenix Custom Edition e-Text]. : . Retrieved August 28, 2010 from University of Phoenix, website.
Smart Sense Publications. (n.d.). Home Buyer 's Information Center. Retrieved August 28, 2010 from http://www.ourfamilyplace.com/homebuyer/checklist.html
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