Economics plays a vital role in our everyday lives. It affects our behavior and our decisions in ways we never take the time to consider. The process of decision making uses economic theories and principles. This occurs subconsciously or consciously. It plays a pivotal role in our choice of accepting or rejecting an option. These theories come into our immediate attention when we decide to purchase a house. Whether you have thought about it for years on end or the idea simply just popped into your mind last night, purchasing a house is a crucial decision and can have major implications on your budget.
The decision to buy a house is a defining point in all our lives. It gives the image that one is ready to settle down. It shows that you are ready for the commitment and can afford your decision. The decision itself is very important. Prices of houses are quite high depending on the location, size and environment. Theories state that the larger the monetary value the purchase requires, the more price elastic its demand becomes (Polinsky and Ellwood, 1979). Looking at the recent prices of houses, it is feasible to say that purchasing of a house requires a large portion of the buyer's paycheck or savings. Since the average person does not have the money to buy anything and everything his heart desires the buyer's purchasing power reduces. Buying a new house, or simply relocating, means a change in environment. You have to sacrifice all that is familiar for new neighbors, new routes and sometimes even new friends. All this and more goes into the decision to purchase a new house. It is understandable if people find it a hard choice to make.
Economic principles can be applied to the decision at hand. First and foremost, the principles of tradeoffs are considered. A tradeoff essentially refers to the sacrifices one might have to make to enjoy something gained from an economic point of view. The general public is not paid enough to buy a house out of their monthly pay check. Everyone dips into their savings. Buying a house can put a crushing blow to your savings if not use them up completely. Alternatives to spending so much many on a house are plentiful. The same amount of money can be spent on quality education from an Ivy League school. You could invest that money, buy the car of your dreams or take a long deserving holiday to a far corner of the world. It is obvious the buyer must weigh the pros and cons before spending a cent on real estate.
When looking to buy a new house, the pros may be listed down as availability to a good school, health care facilities, lesser traffic, a cleaner environment and safety of the family. Larger area can provide more storage space for your furniture and hosting guests or simply a more comfortable environment for the people in your ...