In fact, we have to understand that the economy is just a group formed by people (enterprises or families) trading with each other in their lives, so the premise of completing the transaction is that they have made a decision to trade. At the same time, the behavior of an economy reflects the behavior of individuals who make up the economy, so we can start with several reasons why individuals make decisions:
In fact, in our daily life, we need to make decisions, because we have to weigh one goal and another (for example, if a student has five hours to study psychology or economics, once she increases the proportion of time in one course, the proportion of time in another course will definitely decrease).
In fact, when people form a society, the society also faces various trade-offs between one goal and another (for example, in modern society, the trade-off between a clean environment and a high income level is equally important. Laws that require enterprises to reduce pollution increase the cost of producing goods. Because of the high cost, these enterprises earn less profits, pay lower wages and charge higher prices, or some combination of the three results, which brings benefits to the improvement of health, but at the expense of the income of business owners, workers and consumers.
Another trade-off that society faces is the trade-off between efficiency and equality.
Efficiency: refers to the society can get the maximum benefit from scarce resources.
Equality: distribute these benefits equally to members of society.
In fact, this trade-off is more common in government policies, because there are many policies in the government aimed at realizing the equal distribution of economic benefits. For example, the welfare system or unemployment insurance is to help those members of society who need help most. Other policies, such as personal income tax, require economically successful people to give more support to the government than others.
Although these policies have achieved greater equality, they have reduced efficiency (that is, reduced maximum benefits). Because when the government redistributes the income of the rich to the poor, it reduces the reward (salary) for hard work. As a result, people work less and produce less goods (the maximum income of resources is reduced).
We know that in our daily life, we will encounter all kinds of trade-offs, so when making decisions, we need to compare the costs and benefits of taking actions.
But in many cases, the cost of our actions is not obvious at a glance (for example, suppose we are considering whether to go to college, and we all know that the main benefits of going to college are knowledge and better job opportunities, but what is the cost of going to college? Our first reaction is tuition, accommodation and living expenses. But in fact, this synthesis doesn't really represent what you gave up in college last year)
There are two reasons. First, even if you leave school, you still need a place to sleep and eat. Only when the accommodation and meals in the university are more expensive than those in other places, the expensive part is the cost of going to college. The second point: ignore time. When you spend a year listening to lectures, reading books and writing papers, you can't spend this time at work.
A term is introduced here: opportunity cost, which refers to what is given up in order to get something.
After knowing the opportunity cost, we should consider the opportunity cost brought by the action when making decisions. However, in our life, many decisions are rarely black-and-white choices, and they are often gray areas in between. For example, when it comes to lunch, the decision you face is not to choose between not eating at all or having a big meal. More likely, you will ask yourself "Can you have one more piece of meat"). And this small adjustment is called marginal change.
Marginal refers to "edge", so marginal change is an adjustment around the edge of what you do.
And we have to make a decision by comparing marginal revenue and marginal cost (for example, suppose you are considering calling your friends with your mobile phone. Are you sure that talking to friends for 10 minutes can bring you 7 yuan? The service charge of your mobile phone is 40 yuan per month plus 0.5 yuan per minute. You usually call 100 minutes a month, so you usually pay it to 90 yuan in a month. In this case, what is before you is a decision. Should you call this number? Making this call may increase your phone bill, and not making a call will lose the income of 7 yuan brought by this call.
Reasoning situation 1: Since the monthly call for 100 minutes is to be made to 90 yuan, the average telephone charge per minute is 0.9 yuan, so the telephone charge for 10 minutes is 9 yuan, so I don't make this call because the cost of 9 yuan is higher than the income of 7 yuan.
Inference 2: Although the average cost of a 10 minute call is 9 yuan, the marginal cost-if you make this call more frequently, your payment will increase-is only 5 yuan. Marginal cost 5 yuan
The second reasoning situation is what we call marginal decision. Both individuals and enterprises should analyze the advantages and disadvantages of decision-making more rationally by comparing marginal revenue and marginal cost.
Marginal decision-making also helps to explain some puzzling economic phenomena. For example, why is water so cheap and diamonds so expensive? People need water to survive, and diamonds are not indispensable; But for some reason, people are willing to pay much higher price for diamonds than water.
Answer: The reason is that a person's willingness to pay for any commodity is based on the marginal income obtained by increasing the commodity unit. In turn, marginal income depends on how many such items a person already owns. Water is indispensable, but the marginal benefit of adding a glass of water is negligible, because there is too much water, and no one needs diamonds to survive. However, due to the scarcity of diamonds, people think that the marginal benefit of adding one more diamond is great, which is often said that "things are rare and expensive")
When the marginal benefit of a behavior is greater than the marginal cost, a rational decision-maker will take this behavior, and we should all be rational people (systematically and purposefully try our best to achieve its goal). )
Motivation is something that urges a person to do something (such as the expectation of punishment or reward). Since we want to make decisions by comparing marginal costs and marginal benefits, we will inevitably respond to things that cause changes in marginal costs and marginal benefits. This kind of thing is called incentives.
Motivation plays a central role in economic research. When analyzing how the market works, incentives are also crucial. For example, when the price of apples goes up, people decide to eat less apples. Because of the rising price, apple growers decided to hire more workers to pick more apples. It can be seen that people and apple growers have responded to the incentive of price. The influence of price on the behavior of consumers and producers is very important for how to allocate scarce resources in the market economy. )
Government decision makers must not forget incentives, because many policies have changed the costs or benefits people face, thus changing people's behavior. (For example, various tax policies and the adjustment of the national benchmark interest rate will greatly affect people's lending behavior), but if decision makers fail to consider how their policies affect incentives, these policies will usually bring unexpected results. For example, the laws and regulations on seat belts formulated by the state have changed people's driving behavior, but when judging the safety of driving, they will subconsciously compare the marginal benefits and marginal costs of safe driving. When the benefits of security >; When the cost is low, they will drive more slowly and carefully. For example, when there is ice on the road, they will drive more slowly and carefully than when there is no ice. However, when the laws and regulations on seat belts come out, the risk of accidents for drivers is reduced, that is to say, seat belts reduce the benefits of careful driving. In this way, drivers will be less cautious when their income decreases, and the risk of pedestrians will rise, resulting in a decrease in the number of drivers and an increase in the number of pedestrians, which is obviously different from the original intention of government decision makers. )
Therefore, when we analyze any policy, we should not only consider its direct impact, but also consider its indirect impact through incentives. If the policy changes the incentive mechanism, people will change their behavior.
This article focuses on four points: 1, and we face choices and decisions every day. When we decide to give up something in order to get something, it is called opportunity cost. We should clearly realize the opportunity cost brought by this thing when we do anything. 3. When making a decision, we should weigh the marginal cost and marginal income. 4. Opportunities affect our decision-making.