The Purchase Decision and Economic Principles
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The paper discusses the significance of purchase decisions that are made in the context of limited resources, and emphasizes how a substantial amount of caution must be exercised when making such a decision. The paper focuses on a decision to buy a house and shows how it involves a lot of consumer deliberation and consideration and must be made within the available financial constraints. The paper addresses the various key variables that are going to inform the decision to purchase the house and looks at the trade-offs involved. The paper also utilizes marginal analysis to determine how individuals allocate scarce resources in order to obtain more value, and looks at both the effects of the economy and how the decision to purchase a house depends on how the buyer's other basic needs have been met.
Effects of the Economy
Effects of the Economy
From the Paper:"One of the basic principles of economics is that people face trade-offs; the cost of something is what one gives up for it; rational people think at the margin; and people respond to incentives (Mankiw, 2009, p. 17). These principles very much relate to the variables affecting this purchase decision, which has been mentioned above. There is obviously something that will have to be given-up in order to make the decision to buy a house. The alternative to be foregone should have the same benefit and satisfaction as the house. In this regard, the alternative to the house could be going on a holiday, invest in financial assets or even buy a car. The principle of opportunity cost holds that the cost of a good or service is what an individual has to give-up to get it. In this regard, before a decision is made to buy the house, an analysis of what is going to be given up should be conducted. A purchase decision will only be made if the benefits that will be derived from the house exceed benefits from the foregone alternatives; i.e. the car, holiday and or financial market investments. Ideally, an alternative to buying a house is renting/leasing an apartment. Buying a house will, in the long-run save the cost of renting one, while renting a house means that one will have to give ownership of a house and therefore pay monthly lease charges. The opportunity cost of buying a house is obviously lower than that of renting, hence will opt to buy."
Sample of Sources Used:
- Hirschey, M., (2009). Fundamental of Managerial Economics. Ohio; Cengage Learning
- Mankiw, G. N., (2009). Principles of Microeconomics. Orlando; Dryden Press
- Musgrave, F., and Kacapyr, E., (2001). Barron's how to Prepare for Advanced Microeconomics/Macroeconomics Advanced Placement Exams. New York; Barron's Education Series Inc.
- Wassels, J. W., (2006). Economics. New Jersey; John Wiley & Sons Inc
Cite this Analytical Essay:
The Purchase Decision and Economic Principles (2013, October 08) Retrieved February 22, 2024, from https://www.academon.com/analytical-essay/the-purchase-decision-and-economic-principles-153692/
"The Purchase Decision and Economic Principles" 08 October 2013. Web. 22 February. 2024. <https://www.academon.com/analytical-essay/the-purchase-decision-and-economic-principles-153692/>