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  • Economic Decision Thinking


    Economic decision thinking is thinking on matters regarding the economy. Finance directors, business leaders and financial ministers, to name but a few, routinely conduct it, to provide progress to a country’s economy or on a smaller scale, with providing progress to a small business. These decisions can have a huge impact on people’s lives.

    Economic decision thinking usually always has a few factors in play that are very important to the thinking process. These basic factors form the main basis of the process.

    Budgeting

    No resource is unlimited, and everything decision needs to take into account of the availability resources that can realistically be used. These can be anywhere from budgeting how to spend the tax revenue, say, for the exchequer. Although capital is limited, in many cases loans can be taken out to increase budgets, but having to take interest into account brings back to the issue of budgeting.

    Maximising Value

    Maximising value is another integral basis of economic decision thinking. An example of this is the ‘point of diminishing returns’, which states, in layman’s terms, that as the returns from an investment increases, after a certain point they will no longer continue to grow but instead decrease. An economic decision which makes use of this in the real world, is taxes on corporations. The Government has to make sure that corporations aren’t taxed too high so that they move out and establish a base in another country, but also at the same time ensure they maximize profits from taxes, and put rates as high as corporations are willing to pay.

    Costs Versus Benefits

    This is another very important factor that plays a part in economic decision thinking. The benefits of economic decisions have to outweigh the possible costs of making that decision. This is distinct from maximizing value, since maximization of value does not take into account the possible costs incurred. In essence cost-benefit analyses assumes that for every benefit a certain cost is incurred.

    Logical Decision Making Another important factor in economic decision thinking is logical thought. Although economic theories follow logical thought, this is not the case with humans who carry out the thinking, as they are easily swayed by emotion. It is therefore pivotal that decisions be made that are logically thought out, and there are various mathematical models that have been developed that map out logical thought and help with the process. Economic decision thinking forms a large basis of the economic decisions that are made. It allows major decisions to be, such as those affecting the economy to issues affecting small businesses.

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