Four Principles of Individual Decision Making

Running head: Four Principles of Individual Decision Making

Four Principles of Individual Decision Making
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University of Phoenix Four Principles of Individual Decision Making
The first principle of Economics is that people face trade-offs (Mankin, 2007). Making decisions requires trading off one goal against another. The first lesson about making decisions is that to get to one goal you must give something to get something, it is a trade. An example is that in order to go to work people must find a way there. Some people may walk, ride their bike, take the bus or just drive their car. The trade off in order to get there people must make a decision on what to do. People will decide on buying a bus pass or filling the car up with gas to get to their destination. The end result is going to work people make money to spend on other things.
The second principle of Economics is the cost of something is what you give up to get it (Mankin, 2007). Again, going to work is a good example. Giving up personal time to work forty hours a week to receive a paycheck allows people to open their options on how they want to live, however, not everyone is going to live the same way. Each person may face a trade off in pay due to experience and education.
The third principle of Economics is rational people think at the margin (Mankin, 2007). According to Mankin (2007), rational people systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have. Basically, people adjust to the benefits and cost involved to achieve the outcome they desire.
The forth principle of Economics is people respond to incentives (Mankin, 2007). “An incentive is something (such as the prospect of a punishment or a reward) that induces a person to act” (Mankin, 2007, p. 7). “Because rational people make decisions by comparing costs and benefits, they respond to incentives” (Mankin, 2007, p. 7). Car dealers use incentives to get people to buy cars by offering cash or low rates to entice people to purchase their products. A couple of months ago I made a decision to go back to college. I had to decide on the marginal benefits and the marginal costs associated with that decision. The benefits associated with going back meant I would receive better job offers and open more doors for me in the future. The cost of going back required me to give up time and money to reach my goal. The marginal change required me to only adjust my work schedule which involved re-planning my week. My decision to go back was incentive enough; the only change that would have led me to make a different decision would have been my economic situation and how much money I was making at work.
Based on a few ideas, the principles of economics affect the decision-making, interaction, and the workings of the economy as a whole. Economics is the building blocks of society. Having no money, people do nothing or very little, but when people are working to make money, people spend it. People make decisions on how to spend money which in turn affects everyone. A good example is going to the grocery store and spending money. Buying one item circulates the dollar spent there. That dollar goes to pay the employee at the store or pays the electric bill, which changes hands to the next person and so on. The workings of the economy is just everyone interacting among each other, it is life.

References
Mankin, N.G. (2007). Principles of Economics (4th ed.). Mason, OH: Cengage Learning.

References: Mankin, N.G. (2007). Principles of Economics (4th ed.). Mason, OH: Cengage Learning.