Economics Essay Example | Topics and Well Written Essays - 1250 words - 2

Economics - Essay Example Because of rationality in making economic decisions people often consider the cost and the benefit of their decision. In most cases, people will make an economic decision anticipating a gain (Hirschey, 2009). When purchasing a house I will expect a gain of value, my decision will therefore be based on the difference between the cost incurred to obtain the house and its value. This essay will give a discussion on the economic implication on my decision to purchase a house. Several principals among the ten economics principals will directly influence my decision towards buying the house. Firstly, people face tradeoffs. This is the first principal that I will encounter in the process of making the purchase decision (Slembeck, 2007). This principal implies that one has to give up something in order to acquire something else. According to this principal, I will need to give up my money in exchange to the house. I will also need to give up the purchase of other items that I need most such as a new car in order to acquire the house. Lastly, after acquiring the new house I will have to give up living in my old house in order to occupy the new house. Rational people think at the margin, this is the second economic principal that I will encounter when analyzing my decision to purchase the house (Slembeck, 2007). This principal implies that a rational decision is based on the difference between marginal benefits and cost. ... When buying the house I need to evaluate how the cost of the house compares to the cost of missed opportunities. Finally, people respond to incentives, this principal will be major influence when making the decision (Slembeck, 2007). This means that my decision will tend to follow incentives offered by the different sellers in the market. According to the principal, I will consider purchasing the house from the seller who offers the best discount. Marginal benefits are the additional utility or satisfaction that a person derives from the consumption of an additional unit of a particular commodity. On the other hand, the marginal cost refers to the opportunity cost of acquiring an additional unit of a particular commodity. In the cases of purchasing the house, marginal benefits will refer to the satisfaction derived from a second and subsequent consumption of a commodity (Hirshleifer, Glazer, & Hirshleifer, 2005). The marginal benefit of a house diminishes steadily after acquiring the first unit this is because a person cannot live in two houses simultaneously. This implies that people will tend to spend their money to acquire other items after acquiring their first house. Similarly first time homebuyers will consider their first house as an additional unit. In this case, the house will have a higher marginal benefit that compares well with the missed opportunities. The marginal cost of an item refers to the opportunity cost incurred from acquiring an extra unit of a particular commodity. The opportunity cost of a house is therefore the cost of missed opportunities resulting from acquisition of a second and subsequent house. The marginal cost of a house increases steadily after acquiring the first house since a person can only live in one