A New House - Readiness
In considering the purchase of a new home, there are many factors that can impact the final decision. The various factors are part of the 10 Principles of Economics (Mankiw, N. G., 2007, p. 3); these principles determine the outcome of the decision to purchase a new home.
The 10 Principles of Economics
The 10 Principles of Economics are based on individual behaviors, interactions of people in an economy and how these behaviors and interactions creates an economy overall.
The Decision to Purchase a House
Trading one benefit for another is the first principle of economics (Mankiw, N. G., 2007, p. 4). For example, living and working in a city offers easy access to employment and shopping. However, the decision to buy a new home for a family will require a different lifestyle such as family friendly neighborhoods located on the outskirts of a city.
Economies are created by people, businesses and smaller communities that, as a whole, make an economy. “These firms and households interact in the marketplace, where prices and self-interest guide their decisions.” Financial markets and lifestyles will determine which community is better. The market economy is the sixth principle of economics (Mankiw, N. G., 2007, p. 9).
Sometimes communities must decide between inflation or unemployment; this is a short-run economic trade-off, which can affect the decision to purchase a house now or wait until the market is better.
The marginal benefits and marginal costs are small but significant incremental changes that can affect decisions to purchase a home (Mankiw, N. G., 2007, p. 6). Marginal costs may be upgrades in a home that can increase the price but is a desired addition that an individual is willing to pay for like a dishwasher; marginal benefits are more long-term like a steel frame house will cut costs of homeowner’s insurance. The steel frame versus a wood frame is stronger and will last longer; it will not deteriorate or sustain as much damage from storms like hurricanes as a wood frame house will experience. It is this type of marginal benefit that will save money and provide a return on investment through a better quality, longer lasting home, and will save money on insurance over time.
Mankiw, N. G. (2007). Principles of economics (4th ed.). Mason, OH: South-Western Cengage Learning.