Week 9 – Final Project
By xxxxxxxxxxxxxxxxx XECO212 – Principles of Economics
25 April 2010
Sara Huter
A New House - Decision
Many of the decisions we make as consumers are directly related to the current state of the economy. Moreover, as consumers are faced with life changing purchases, they will weigh the marginal costs and benefits associated with their purchase. This is most apparent when there is a decision to purchase a new home. Throughout this paper I will explore the economic principles that directly relate to this type of purchase. As well, identify the contributing factors that help shape the strength of our economy.
The decision to purchase a new home can be a daunting and challenging choice. As current homeowners will testify, various factors will contribute to this life-changing decision. One of these factors includes trade-offs, which they will face before and after their purchase. This trade-off is one of the fundamental principles of economics; stating that we must give up something to receive something else. For a perspective homeowner this trade-off can be a reduction in the amount of available purchasing power. Once the purchase has been completed, the homeowner would be required to spend any extra money on their mortgage payment. Or for a couple who travels, it could be the loss of multiple vacations to popular destinations around the world. Moreover, this first principle defines that every decision comes at a cost. By deciding to purchase a home, one may have to forego other decisions such as buying a new vehicle.
Looking at the second economic principle, which states the cost of something is what you give up to receive something else, can be easily identified with the purchase of a house. According to the chapter text, this is defined as the opportunity costs, making a decision which requires the comparison of the costs and the benefits of a substitute action. The decision
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