Principles of individual decision-making
Individual decision-making is a process where a single person makes a decision without necessarily consulting other parties. This increases the chances of making ineffective decisions and it is for this reason that there are principles which have been developed to act as guides to the individuals. The principles are as follows;
One should never risk above what they cannot afford in terms of channeling resources towards the implementation of the decision. They should be able and willing to fully meet the demands of their decisions. The decision makers should also be aware of their limitations and only risk up to where the available resources can warrant (Martin & Matthias, 2007). The third principle requires of decision makers to only risk in ventures that have gainful returns and finally they should also learn to trust and follow their natural instincts.
Example of a decision
One time at the shopping mall I was forced to compare the marginal benefits and marginal costs before making a decision. I had carried a fixed sum of money that would only be enough to purchase the commodities I had in mind. It also happened that on that day a new video game was being launched and due to the large number of people keen on trying out the game, a small fee was being charged for every playing session which lasted roughly two minutes. Being a video game enthusiast I could not let this opportunity pass me by and so I decided to play then strike out non basic commodities on my list. The benefit was to experience the thrill of a totally new game whereas the costs were the number of items that I would not be able to purchase afterwards. After 5 sessions I realized that the game was no longer as interesting as it was at the first time and it is then that I decided to embark on my initial mission. However I must also state that had the fee been reduced further I could have continued playing for as long as my money could allow.
How the principles of economics relate to decision-making, interaction, and the workings of the economy as a whole
The principles of microeconomics relate to decision making in the description of rationale decision makers. These are described as those who take actions only when the marginal benefits exceed the marginal costs which also happen to be the basis of decision making (Erbschloe, 2009). The principles are also related to interactions in the sense that there is a trade off between unemployment and inflation in the short run. This forms the basis in the formulation of fiscal and monetary policies. There are also relations with the workings of the economy as a whole in the recognition that trade encourages specialization in the market then acquiring output that people need but do not produce efficiently.
Market economy, centrally planned economy, and mixed economy
A market economy is one which the market decisions and conditions are guided by the market forces of supply and demand and there is also minimal government intervention (Tsai, 2009). A centrally planned economy on the other hand is controlled by the government which also happens to be the major producer of goods and services consumed in the market. A mixed economy borrows from the above two by allowing a mixture of market forces and government control in the market.
Economic interactions and the type of economic system
Economic interactions are affected by the type of market system. In a market economy the forces of demand and supply offset one another thereby avoiding surplus and deficit situations in the market. On the other hand, the government in a centrally planned economy often conducts analyses of the market situation and only produces an output capable of satisfying the prevailing demand. The situation in a mixed economy is very similar to that in the market economy only that the government intervenes to rectify market imperfections such as persistent deficits or surpluses.
References
Erbschloe, M. (2009). Principles of Macroeconomics. Principles of Macroeconomics — Research Starters Business, 1-8. Retrieved from EBSCOhost.
Martin, K., & Matthias, S. (2007). Individual versus group behavior and the role of the decision making procedure in gift-exchange experiments. Empirica, 34(1), 63-88. Retrieved from EBSCOhost.
Tsai, M. (2009). Market Openness, Transition Economies and Subjective.
Wellbeing. Journal of Happiness Studies, 10(5), 523-539. y6 Doi: 10.1007/s10902-008-9107-4.