Economics

[Name of the Institute]

Economics

Discuss which principles of economics directly relate to your purchasing decision?

In purchasing of a new home, following principles of economics are directly related with the purchasing decision. These Principles are as follows.

People face tradeoffs

There are different options that are being faced by the customers more importantly in deciding what to purchase. If the people have enough or unlimited resources then they will not decide which option should be chosen? If the people have limited resources but the needs and wants are unlimited then the purchase decision should be made, consumer must have to give another thing that they like equally. It is basically the concept of tradeoff. For instance in order to purchase product for instance A, the people trade off another good (product B or product C) in exchange of A. For instance in purchasing a new house the customer may have to forgo other things like television, car, and other major purchases, or investments and savings. (Marshall, 2009)

The cost of something is what you give up to get it 

As an aftereffect of tradeoffs that people face, they should then be careful in the evaluating all the cost and benefits accompanying each option available. It is the concept of opportunity cost as what individual will for goes or sacrifice in order to get other items. In spite of the fact that individual have unlimited wants and needs, but the scarcity of resources cannot satisfy their needs and wants. Therefore, individual will have to choose one option and have to give up other option available that can be money saving, major purchases and others.

Rational consumers think at the margins

Some of the choices are based on the “marginal changes” or existing plan of action as described by the various economists. In case of buying a new home it will not be the option to buy a new home or living off the streets. An individual must compare the marginal cost of the purchase of the home when deciding to buy a new home, it may be payment of amortization with rental payment and marginal benefits for instance security of owing home, tax shield that is being associated with the owing of home. Through this, individual can evaluate whether the purchase is attendant cost.

Incentives are a good way to motivate people

People make decisions on the basis of the cost and the benefit analysis. Therefore, if the cost and benefits changes the decision for the purchase also changes. The reason behind this is that people respond to incentives. For instance, if the rental payment increases, the people might decide to purchase a new home instead of paying rent. As a result the developers of real estate are encouraged to build more houses in order to accumulate the demand to increase. This happens because the benefits associated with the selling of houses also increases.

Compare the marginal benefits and the marginal costs associated with your purchasing decision?

In making a decision to purchase a house, there are different benefits and the marginal cost that ...