This is the decision by individual households on allocation of limited resources. Macroeconomic decisions are focused on the country and governmental decisions. Macroeconomics is the study of the economy as a whole. While microeconomics deals with households and the consumer level, macroeconomics deals with complete industries. Microeconomics deals with the lower level of the economy. Microeconomic decisions are motivated by cost and benefits. A families financial decisions are based on microeconomics. When one asks “Should I make this purchase? ” This is based on that person’s financial status.
Macroeconomics is the argue picture considering how all of the smaller decisions come together to form a larger economic status. Macroeconomics studies the Gross Domestic Product and the national debt. It is important to understand microeconomics before one can fully understand macroeconomics. While there are major differences, they are both interdependent and one another on overlapping issues between both fields. Microeconomics takes a “bottom up” approach, starting with the consumer. Macroeconomics takes a “top down” approach, starting with the government. There are four principals of individual decision making (Manama 2007).
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These 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. ” People face trade-offs is the decision a person must make prior to completing the activity. It is known that the money spent on a product or service, once spent, is gone. That dollar cannot be spent elsewhere. This is where one must prioritize where to spend resources. Many people face hard decisions on a daily basis, such as where to spend money. Bills must be paid, but children must be fed and clothed.
Some families are facing these types of sections every day. There is always an end result that is associated with the trade- off. Getting from point A to point B, there are several choices. One can drive, take public transportation, or walk. One must make the decision on which mode of transportation to take. The “trade-off’ is that driving is faster than walking, but costs more in fuel and maintenance. Public transportation is faster and costs less, but it is on a set schedule that one has to follow. The second principle of individual decision making is the cost of something is what you give up to get it (Manama, 2007).
Simply impairing prices is not an accurate avenue to an educated decision on a purchase. There are more aspects to compare. There are other, non-tangible costs associated with a purchase. Some of these may be the maintenance costs on a lower priced item. It may cost less upfront, but the total cost of ownership may be higher in the long run. It may be cheaper to purchase an older truck than a newer car, but in fuel and maintenance, the older truck will cost more. The pros and cons of this decision are all personal. The lower upfront costs may be more beneficial to one person than to another.
A personal decision that I am struggling with right now is with my credit rating. I have two credit cards that have a high balance. These are both in my ex- wife’s possession. They are both delinquent on payments. I have to decide whether to just take out a high interest loan to pay these off and renew my credit rating, or to let her financial decisions affect my credit rating. The third principle of individual that the benefit must exceed the cost. A personal experience with this would be that I have a truck that gets very low fuel mileage. I needed a car with better fuel economy, UT have bad credit.
I weighed the pros and cons of buying a car with a high interest loan, and felt that the benefit was worth the cost. While some would say there is nothing good to come from this, those who make these choices must feel there is. Manama (2007) points to the difference in value between water and diamonds. A marginal increase in a person’s water supply will rarely come at a significant cost to the person. However, a marginal increase in diamonds is extremely valuable. The forth principle of individual decision making is that people respond to incentives Main, 2007).
An incentive can be a positive or negative that will coerce an individual to act. Rational people will compare costs to benefits to make a decision. They will respond when the cost to benefit ratio changes. An example would be a fuel tax. With higher prices, people are enticed to drive more fuel efficient cars. Unfortunately, this affects the consumer in more than one way. The higher fuel tax creates higher gas prices. The trucking industry feels this hit, and in response, raises their rates to transport goods. This causes the merchant to raise prices, and we, as he consumer, must pay higher prices for goods.
An example of when I faced a trade-off, considered opportunity costs and evaluated the options by comparing the marginal benefits and the marginal costs associated with that decision would be with the higher fuel tax, gas prices were on the rise. I was driving a four wheel drive truck that gets about 13-15 MPEG. I have bad credit due to a divorce. I needed a smaller car that gets better gas mileage. I took out a high interest loan to pay for a smaller car because the cost of the loan, insurance, and gas was lower than Just the cost of gas in the truck.
Even though I am paying an astronomical interest rate, the benefit outweighed the costs in this situation. I was offered a different vehicle that came with a lower interest rate, but the rate was still high, and the other vehicle cost about three times as much. While the newer vehicle may have been a better choice, the cost outweighed the benefit, so my decision was to buy the older car with a higher interest rate and a lower loan value. Module 1 Homework Assignment ACNE 150: Introduction to Microeconomics References Principles of Microeconomics (6th Edition) N. Gregory Manama (2011) Chapter 1 and
Chapter 2 Module 1 notes and slides http://economics. About. Com/CSS/strenuousness’s/f/microeconomics. HTML (2011, 11). Four Principles of Individual Decision Making. Studded. Com. Retrieved 1 1 , 2011 , from http://www. Studded. Com/essays/Four-Principles-Of-languidly- Decision-Making-845021 . HTML http://www. Owe. Com/info_7877461 _four-principles- individual-decommissioning-economics. HTML PART II: Reflection Essay As you think ahead for the next seven units, identify and describe three concepts you would like to leave this class knowing more about and how those concepts will play a ole in your overall decision making process.
Write a one to two page essay and identify topics of study along with the reasoning behind your choices. I started this class not understanding what either microeconomics or macroeconomics was. What I want to take from this class is a better understanding of what each is and how they apply to the general public. I am interested in local government, and from what I have learned in the first module, I see how each plays a role in the decisions that city council makes regarding the funds we, as a city, have at our disposal.
I would like to leave this class knowing more about how the economy as a whole works. The eighth principal of economics states that a countries standard of living depends on its ability to produce goods and services. There are major differences in the standard of living between the United States and many other countries. The average wage is commensurate with that difference. The productivity of each country decides its standard of living. In countries with a higher standard of living, there is a larger quantity of goods and services produced from each unit of labor input.
What I ant to learn from this is what we, and Americans can do to promote growth in our own country and to keep ourselves at the forefront of the worldwide economy. Next, I would like to learn to think like an economist. Not that I am looking for a future as an economist, but that I would like to know what their thought processes are. Economists make decisions for us as a whole. I think we should know how and why they came to these decisions. I know I will not learn this in one sitting. Over time, I can learn the basics and will have the opportunity to practice and better learn this skill.
Although it sounds contradictory, economists are scientists. They Just study a different science. Economists, like scientists, devise theories, collect data, and then As my interest in local government suggests, I would also like to learn more about the economist as a policy advisor. Economists are asked how to improve the economic well-being of the general public. As all economists know, no policy decisions are easy. I would like to be involved in making those decisions. Learning more about the economy, and both microeconomics and macroeconomics will help to get me to this goal.