A New House - Essay

Topics: Economics, United States dollar, Central bank Pages: 6 (1795 words) Published: June 6, 2012
A New House-Decision 1

A New House-Decision

Angel M. Davis

Axia College at University of Phoenix

A New House-Decision 2

In this paper I will discuss which principles of economics directly relate to my decision of purchasing a new house. I will discuss the marginal benefits and cost which will help me make a firm decision. I will also explain how the strength of the economy affects my decision. I will also asses how international trade and the domestic economy played a role in the strength of the economy.

I think that principle one, four, and seven are important to the decision making process of buying a house.  Principle one is about trade-offs. Trade-offs are influential in the decision making process.  I have to evaluate the new cost of owning a home and what cost I may have to give up in order to purchase a new home.  I may have to give up the cost of a vehicle, or cut back on eating out and going to movies to save up to have money for decorating my new home. I may have to sell things to accommodate for the down payment.  Principle four is about incentives. People respond to incentives and this can be valuable in the home buying process.   According to Mankiw, N. G., (2007), "an incentive can induce a person to act because rational people make decisions by comparing cost and benefits," (p. 6).  There are tax credits for first time homebuyers that can help with down payments and closing cost. Incentives like this have increased my interest in purchasing a home. Another important principle that would be beneficial in the decision making process is principle seven. The governments can sometimes improve market outcomes.  The housing market is not at its best for the year 2009.   I have seen several communities with empty homes due to foreclosures because people are losing jobs and the taxes on the land have increased drastically.  The government is the "invisible hand that enforces our rights over the things we produce," (Mankiw et. al., 2007 p. 11). 

A New House-Decision 3

The government can have an impact on my decision based on their spending habits. Rational people make decisions based on marginal benefits and marginal cost.  When purchasing a home I am willing to pay what it is worth because of the benefits that I may receive.  Houses are not cheap and are not ready available like water and paper towels, but the marginal benefits can be huge.  I would like to think of myself as a rational thinker. Today’s economy is having a huge impact on my decision.  Since our economy is going through a recession the marginal benefits may not out- weigh marginal cost.  Unemployment is high, no one is confident about job stability.  Many people have lost their homes to foreclosure because property taxes have increased, unemployment is rising and the economy is not prosperous.  Government spending has also put a huge dent in the economy.  I like to rationally evaluate marginal cost and marginal benefits and this is how I can come to a decision to buy a house or not buy a house.  My willingness to pay for a product is the marginal benefit that buying a house could provide.  We all know that buying a house is a good investment.  If I decide to sell my home later on, I could make a small profit.  In the case of buying a house the marginal benefits would definitely exceed the marginal cost.

Marginal benefits can be described as the benefits an individual gets from buying a product. Marginal cost are normally associated with buying a product. When analyzing the pros and cons of purchasing a home I look at the benefits such as having space, a pool, the ability to have social events without bothering my neighbors. Then I would analyze the cost, such as homeowner’s insurance, maybe having to replace the water heater if it stops working, or having the plumbing fixed if it stops...

References: Feiler, K. (1997). Strong Dollar Weak Dollar Foreign exchange rates and the US economy.
Retrieved December 13, 2009 from,
Benko, E. (2009). Factors that affect foreign exchange rates.
Retrieved December 13, 2009 from,
Mankiw, N. G. (2007). Principles of economics (4th ed.). Mason, OH: South-Western
Cengage Learning.
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