The decision to buy a house is the biggest financial transaction and one of the most important steps one will ever make in life. When making decisions, as big as buying a new home many people fail to look at the pros and cons. The same can be used to give good reason for actions and behaviors when making an investment. Understanding the ten principles of economics will help to make the decision a lot easier. To start with, the choice to buy a house often deemed an exciting and momentous choice by most. The reason behind the statement is that prices for a house are considerably high, and thus the purchase of a home will significantly reduce the nest egg of an individual therefore, making the demand for a home price elastic.
The theory is a large percentage of one’s income an investment calls for the further price elastic demand will be. The purchase of a house necessitates an individual to spend a large proportion of their income, so this will significantly reduce an individual’s purchasing power when deciding to purchase the house is reached. Additionally purchasing home will involve an individual to change from an environment that is familiar to an environment that is less familiar, potentially becoming an over whelming and frightening experience to some individuals. Consequently, adding such factors as these make buying a home an extremely difficult choice.
With 10 different principles of economics, one can apply in a decision to buy a house. One at the top of the list would be that of trade-offs for which an individual will encounter. Every single choice comes at a price especially when purchasing a new home. Such is the case when choosing to buy a home exhausting an individual of a sizable percentage of their savings. The tradeoff will be the alternatives they would have gotten to experience with the money spent on the purchase of a home. In other words, the money spent on a home could have been used to pay for college, taking that much-needed vacation, or buying that dream car.
Therefore, an individual should ponder heavily the pros and cons the other possibility could have against the choice to purchase the home. Meaning an individual needs to identify what benefits, the purchase of this home will bring. These benefits could possibly be a cleaner natural environment and greatly beneficial to one’s health and the health his or her children. In addition, more room produces more space for the family to spread out and become relaxed and happy in the new environment. Consequently, an individual concludes that buying a home is worth giving up the alternative benefits for the benefits that choosing to buy a house can bring.
Another economic principle one can apply in deciding to buy a home will be the opportunity cost of the decision. Opportunity cost indicates the cost of the second greatest substitute one has to give up and involves the explicit and implicit costs. An explicit cost simply refers to the total of all...