Uploaded by Fiona Usher

Economic decisions-Chapter 2

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Economic decisions
Economic decision is where an individual is faced with options and chooses one course of action.
Factors influencing economic decisions:
Factors influencing economic decisions of households:
1. Personal choice - a desire for a product that is acted upon.
2. Size of income - growing income allows you to purchase more and vice versa
3. bandwagon effect - some people might buy an item because everyone is buying it
4. Type of work 5. Level of education - this influence the type of items we like to own such as books or
laptops
6. Rate of interest - if the rate of interest offer by bank is high, then individuals will tend
to save more
7. Climate and weather conditions - the weather will affect economic decisions of
households, as it has a direct influence on comfort and safety
Factors influencing firm’s economic decisions:
1. Cost of production - increasing costs can reduce a firm’s output, unless the prospect for
profits are high.
2. Profits - supernormal profit is the excess of total revenue over total costs
3. Resource base - is the quality and type of resources available to a firm
4. Industrial relations - the relationship between the management of a firm and the workers.
5. Changing demand - if a firm is faced with fallen demand for the good it produces, the firm
will make a decision to cut back on production. If there is an increase, then they will
produce more
Factors influencing government's economic decisions:.
1. Laws and grants - to induce firms to locate in a particular region of the country.
2. Taxes - on the production and consumption of goods that impose a cost on society.
3. Setting up of infrastructural zones - to encourage and facilitate the activities of firms.
4. Provision of infrastructure - such as roads and bridges
5. General laws - to direct firm's’ activities.
6. Laws concerning the employment of disabled persons - there should not be any
discrimination of persons who are disabled who wants to work.
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