Essay Preview: Economic Behavior
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In general, human wants are unlimited. If there is a chance for people to get all the wants that they desire, their demands keep increasing forever. But the fact is resources (income) are limited and they are forced to prioritize their wants and often forced to trade off one wants for the other. This reaction to the limited resources available is called economic behavior.
There are four principles of individual decision-making. The first one is that people face trade offs, and this basically means that for every decision you make trade off one thing for another. Secondly is the cost of something is what you have to give up in order to obtain it. Thirdly rational people think at a margin, and it means that before you make an indefinite decision you should think it through first. Lastly is how creativity if individuals plays a part in maximizing satisfaction given the resource constraints.
One aspect of economic behavior is economic choice, people often prioritize their wants and choose most preferred and convenient choice from the available choices. The elected choice may be due to imposed restrictions, personal convenience or limited resources.
Because of the scarcity of the resources it is not possible to have whatever we want. To get the better value from limited resources it is essential to evaluate the difference between the total cost and the total benefits of any activity. To choose the better option one of the tools provided by the managerial economics is marginal analysis. By weighing the marginal benefits against the marginal costs one can take the best decision.
Given the constraint of income opportunity cost can be explained as the opportunities forgone in the choice of one expenditure over the others. From a consumer perspective the opportunity cost of buying a new refrigerator might be the value of a vacation trip that he has forgone due to the constraint of limited income.
Creativity of individuals
It is believed that individuals are very creative in maximizing their resource and minimizing the effect of constraint. There are loopholes in every economic system and individuals get very creative about identifying it and making best use of it. An example that comes to my mind is our company provides subsidized vanpool for commuters to work .One of the requirement to have a company van is a minimum of 5 members per van. Recently one van lost its 5th member and per company policies the facility was to be taken away. The vanpool members got very creative and kept the 5th member enrolled in the van and reimbursed the cost to the 5th member that way they were able to keep the van even though the cost was a little higher