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Think In an “Economic Way” Business Economics 

Think In an “Economic Way”

ashah-economyThinking in economic way can help a person to analyze complex problems. There are several

methods that can be followed to think in this perspective.

Every Choice Has Its Cost

Due to scarcity of human and capital resources, individuals have to make choices and must

decide how to use best out of the available reserves. The notion “there is no free lunches and

dinners” represents the essential issue of economic sense, as you have to tradeoff for one thing

for another. Opportunity cost is the value of best forgone alternative, while choosing other

alternative with limited resources.

For examples, you can either choose to remain in college or quit it. You can get good job by

quitting your college, enough to buy branded dresses, playing games and hanging out with

friends. On the other side, you won’t be currently able to afford all these things by being a

college student but your education will help you to get better job later to afford more than these

things.

Thinking at the Margin Can Help to Make Better Choices

According to economists, people can make better choice by thinking “at the margin”. The

sentence means that the margin helps them to decide to do a certain level of activity. Thinking on

the margin is to think about the next increment only, i.e. How should I spend my dollar number

1? How should I spend dollar number 2? And So on.

For example: you have $120 and you want to buy a burger and drink (both with equal worth, and

costs 40 each). You will purchase one of each item and for the next $40, decision will be made at

the margin or which you like just a little better.

Rational Self-Interest

In economics, rational self-interest defines the choices made by people, or the ways by whom

people choose the options that result in their greatest amount of satisfaction / comfort. Every one

of us made rational choices based on our best interests.

For example, you choose to continue our collage while you friend has opted to leave it and start

doing a job. Doing one thing that is in your best interest might not be in the interest of others,

due to different goals and attitudes.

Economic Models

Economists also use model like other scientists, to make decisions. The economic models are

built from diagrams, words and mathematical/statistical equations. These models help us to

recognize, explain and estimate economic occurrences in the real world including inflation,

unemployment, exchange rates and wage rates.

For example, economic model explains that how change of interest rate of an economy effect of

investment spending of a business.

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