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How People Make Economic Decisioins Essay

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How People Make Economic Decision
ECO/212
November 14, 2011

How People Make Economic Decision
People confront difficult decision every day. When a person rationalizes his or options the principles of economics are useful when making decisions. Individuals use these principals every day without even thinking. These decisions are affected by tradeoffs, cost, rational, and incentives. The following information reviews how decision-making and economic interaction affects the economy (Hubbard & O’Brien, 2010).  
Principles of Decision-Making
Economics involves the analysis of choices regarding limited resources and how to achieve economic goals within these limitations (Hubbard & O’Brien, 2010). Economists assume that most consumers are rational and make decisions depending on what is best for them. Consumers base decisions on the information given to them and weigh the decisions depending on the benefits (Hubbard & O’Brien, 2010).
Trade-off
When a rational person weighs the benefits of each decisions he or she is reacting to what will be more beneficial in relation to economics. With every decision a consumer makes there is a trade-off. To receive something there is usually something that the consumer must give up. For example: If a consumer wants to purchase a rare item, the trade-off may be a larger purchase price. This decision will require the consumer to think rationally about the purchase and if the trade-off is the worth the cost (Hubbard & O’Brien, 2010).
Marginal Costs and Benefits
For every decision made there is always the involvement of cost. The cost is the money or personal choices given when consumers and producers make economic decisions. The belief is that people generally think rationally and these rational people think on the margin. A decision is usually not complete without the marginal benefit exceeding the marginal cost. When costs and benefits change there is also a change in behaviors (Hubbard & O’Brien, 2010)....

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