A New House Desicion Essay Example | Topics and Well Written Essays - 1500 words

A New House Desicion - Essay Example In the case of purchasing a new house, an individual might have to give up the benefit of a vacation trip to Switzerland. When an individual is deciding about purchasing a house, he does not only forgo the benefits of purchasing another good or services, he/she even forgo the cost attached to purchasing a good or service over the cost of good and service he/she has planned to purchase. This is called the cost benefit analysis that an individual has to conduct in order to make a purchase decision. While conducting cost benefit analysis, an individual compares the cost and benefits of purchasing a particular good or service in comparison to the costs and benefits associated with the forgone goods and services (Stretton, 1999, p.206) In the real world individuals are not presented with a situation where they have to choose either one side of the paradigm. For example while purchasing a house, an individual might have an option of purchasing the one located in a low cost area and might h ave another option where the house is located just on the street. Individuals use the concept of marginal changes or in other words alterations that are incremental and meager in nature as stated by the economists. For example: an individual might be under the process of deciding whether to buy a new home or to obtain a home on rent, the decision of whether going for the purchase or rent depends on the marginal costs and benefits that are attached with the decision. Another economic concept that comes into play, while an individual makes the decision of purchasing a new house is the concept of incentives.... People make decision after conducting a cost and benefit analysis for various decisions and they might change their decision over time with changes in the costs and benefits associated with a decision. For example: if an individual obtains an apartment or a home on rent, he might go for purchase of a new home if the cost of renting the house exceeds the benefits of obtaining a house on rental conditions. Due to increase in rents, demand for ownership f houses will elevate, which will increase the demand of new houses and the supply of new houses will increase. Marginal Costs Several marginal costs and benefits are associated with an individual’s decision of purchasing a new home. These costs and benefits need to weigh properly in order to reach a decision that is backed by utmost rationality. The first marginal cost that an individual has to experience is amortization while making the decision to purchase a new home (Arnold, 2010, p.505). If an individual is currently living i n a home that he had obtained on rental basis and in order to purchase a new home requires certain portion of the amount of money the individual is paying as rent for repayments, the different between these amounts is recognized as a marginal cost. This case is mostly experienced by individual as purchase of house is much expensive than obtaining a house on rental basis (Grant, 2000, p.29). Other than the amount of money paid as amortization, individuals even need to take into consideration, the payment of insurance bills that are associated with the purchase of a new home. Another form of marginal cost that an individual might have to pay is the amount of time that an individual spends in traveling from school or work to his or