Economic Decision Making Economic Decisions Are First

¶ … Economic Decision Making

Economic decisions are first and foremost influenced by the dividends an individual stands to lose or gain with the choices they make. Because economics are the basis of individual well-being, people must prioritize time and spending, weigh the intensity of wants against the implications of needs, and carefully consider disruptions to earning potential as this most directly impacts each of the aforementioned categories. As detailed by N. Gregory Mankiw, the four basic principles of economic decision making include that all individuals face trade-offs; In order to make gains, some commodity or quality is often lost -- the most common loss includes the trading of money for goods. Next, Mankiw exerts that the cost of something is what you give up to get it, implying that all gains come at a price that extends beyond their monetary value to include time and effort spent. Third, Mankiw explains that people who are rational make decisions based on their limits, or "at the margin." By the same token, irrational individuals allow outside factors such as advertising, social implications or personal gratification to impact their perception of personal economic margin. Lastly, Mankiw states that economic incentives will always motivate economic decisions.

Every day tasks require individuals to employ each of the principles outlined by Mankiw in order to ensure that personal finances go as far as they can. One common example of weighing marginal cost against marginal benefit has to do with the purchase of an automobile. Most consumers are able to limit their choices while browsing for a car based on usage. Married couples with children are more apt to choose sport utility vehicles or vans as opposed to single, unmarried adults who may find pickup trucks, two-door coupes or compact cars adequate. After passing this preliminary hurdle, economic principle usage becomes more evident. Cars come equipped with a litany of options for safety, security, convenience and comfort. However, a four-door sedan equipped with leather interior, anti-theft tracking, Bluetooth cellular phone capabilities and navigation system has a different price tag than a similar model with cloth interior and a manual transmission. Purchasing the more expensive auto means a heftier price to pay, but may be weighed against the buyer's perceived increased social status, personal comfort and peace of mind in the event of a rollover accident, lockout or flat tire. Such benefits may be seen as more important than choosing a cheaper car and using the money saved in the long run to cover other life necessities. Because auto makers are aware of consumers' need to stretch their dollar, many offer incentives in the forms of cash back, 0% financing, free maintenance and upgraded features in order to sway rational buyers to consider products they perceive to be outside of their limits.