Economic Decision Making

Economic Decision Making

Principles of Economics 212

September 28, 2010

Dr. Susan Dadres

Economic Decision Making

There are many factors that affect individual decision making, such as demand, social factors, prices, opportunity costs, economic systems, and many others. In economics, individual decision making is not limited to just buying and selling, there are many other issues that are covered such as “a family deciding how many children to have” (Hubbard & O’Brien, p.13) or whether or not to go on vacation.

A few weeks ago my friends and I decided that we wanted to take a trip to Pensacola Beach, Florida for Labor Day weekend. I had enough money to go on the trip but also wanted to save that money for a later time. The marginal benefit would be the fun I would have at the beach with my friends, but the marginal cost would be the money I would not be able to save. My decision was to go on the trip and while I do wish I could have saved the money I spent, I did have a great getaway with my closest friends.

I thought about many different incentives that would have made me stay home, but one of them that could have led me to change my mind would be the money I would be able to save to use for something like shopping or just simply adding to my savings account. With the extra money in my savings, I would have extra cushioning in case an emergency came up, such as one of my tires blowing out on my car.

Principles of Economics in Relation to Decision Making

The principles of economics explain the ways people think when it comes down to decision-making on many different levels. Economics also play a role with the interactions between buyers and sellers. When buyers approach sellers or vice versa there is an interaction that must involve decision-making.

A market economy is “an economy in which the decisions of households and firms interacting in markets allocate economic resources” (Hubbard & O’Brien, p.9). In a market economy, the sole purpose of firms is to produce and sell goods and services that the consumers ask for. If the firms do not adhere to the demands of the consumers they will go out of business. Since consumers decide what should be sold, firms will compete with other firms to get the most sales. As