Supply and Demand and Price Elasticity Paper

Essay by illdjUniversity, Bachelor'sB-, February 2010

download word file, 3 pages 3.0

Economic DecisionsPersonal income is "total amount of money Americans have to spend after taxes relative to overall output of goods and services has hit the lowest level in 25 years". (Panzner, ¶ 2) There are four basic principles of individual decision making. These four basic principles are People Face Trade-offs, The Cost of Something Is What You Give Up to Get It, Rational People Think at the Margin, and People Respond to Incentives. This paper will briefly explain the four principles of individual decision-making. It will also provide an example of a decision in which you compared the marginal benefits and the marginal costs. The paper will explain what incentives could have led making a different decision. Lastly, the paper will explain how the principles of economics affect decision-making, interaction, and the workings of the economy as a whole.

Four PrinciplesThe first principle, People Face Trade-offs, is means that a person has to give up on item for another.

For instance there are people in the world today that have to decide which is more important, water or electricity. These people juggle their bills with the skill of a court jester. However, there are times when the money is not there and they have to make the tough call on what they will live with and what they will live without.

The second principle, the cost of something is what you give up to get it is similar to the first but it looks at what was gained and lost. By spending $15,000 for a deposit on a house, the buyer lost the interest from having that money in a savings account. Even worse, they lost the capital gains the could've achieved by investing that money in a stock like Disney, which has outperformed the S&P 500 for the last...