Laura Gauthier Case Study

The decision to buy a home is a very big and important step and should be entered into very carefully. Home buying is the most important decision that a couple or person will ever make in their lives. Whether you are expecting a new baby or the children have grown up and moved out. A studio apartment will be too small for a growing family to live in, and a four bedroom two story house will be too big for an aging couple to maintain. One must take into consideration the location of local services and schools, churches and markets, all of these factors that have come into play have played an important part for the decision in buying a home. Many people will decide on looking to buy a house without looking at the pros and cons. Not doing the work to really see if it will be beneficial to buying a home could sometimes result in making the wrong decision financially. There are many important things to take into consideration when deciding to buy a house or not. Some of the questions that would need to be answered are what are the tradeoffs, what would you have to give up and what will you gain in buying a house, what government programs are there to assist in homeownership, the marginal costs and benefits of purchasing a home, and is the economy strong enough to support buying a home. This type of decision cannot be made in haste because everyone's situation is not alike and each line of questioning applies to everyone. Being careful and taking the time to look at the pros and cons and the ten principles of economics will help with making the correct decision in purchasing a home for my family.

First, the decision to purchase a new house is considered a large and important decision by many. This is because the prices of houses are usually very high, and thus purchasing a new house will greatly deplete the savings of an individual. The demand of houses is highly price elastic. Economic theories state that the larger the proportion of income a certain purchase requires, the more price elastic the demand will be. In the case of the purchase of a new house, it will require the spending of a large proportion of an average person's income, hence this will greatly lower the purchasing power of the individual when the decision is made to purchase the house. Furthermore, buying a new house will require people to shift from a familiar environment to a less familiar environment and this can be a life-changing experience which may be scary to some. Hence, these are all factors which make the purchase of a new house a very difficult decision to make.

Utilizing some of the ten principles of economics will apply to help make the decision much easier. The first principle of economics that applies to the decision making is the "People Face Trade-Offs." In economics, a tradeoff refers to what a person is willing to give up in order obtaining something he or she may deem more valuable. In the decision to purchase a home the largest tradeoff will obviously be the amount of money that one is willing to part with to buy the home, the cost of something is what you give up in order to get it. Purchasing a new home will mean that a person will have to give up, or cut down, on expenses such as entertainment, clothing, and vacations because there will now because there will now be a mortgage to pay. For example, the same amount of money spent on a new house can be used on sending a child to university, going on a vacation or purchasing a new vehicle. Thus, a person will need to weigh the pros and cons of these alternatives against the decision to purchase the new house. This will involve identifying the benefits of the purchase of the new house. Thus, consumers will make the decision to purchase a new house when he or she feels that it is worth it to give up the alternatives for the benefits which a decision can bring.

The second economic principle which can be applied to the decision to purchase a new home will be the opportunity cost of the decision. Opportunity cost refers to the value of the next best alternative which one has to give up. This will involve both explicit and implicit costs. Explicit costs merely refer to the total money which is spent on purchasing the new house. However, implicit costs will cover non-monetary costs such as the loss of good neighbors and the possible bond which one can form with other members of the family should the same amount of money be spent on a family vacation instead. Marginal costs and benefits is also another example of a principle of economics which can be applied to the given scenario to purchase a new house. A person will only make a decision when the marginal benefits outweigh or are equal to marginal costs. In