Final Project- A New House � Decision- week 9- day 7

Final Project- A New House � Decision- week 9- day 7...

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A NEW HOUSE – DECISION 1
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2 Purchasing a new home is not a decision that a person should take lightly. It is a decision that should be weighed carefully and all of the financial pros and cons should be taken into consideration. Buying a new home for many people is not only a purchase but also an investment. However, the purchase can lock a person into mortgage payments for many years to come. A person must weigh all the economic factors that may have an impact on their purchase or understand the consequences if they do not. The first principle of economics is that “people face tradeoffs.” (Mankiw, 2007) When making a decision to buy a home people must think of the pros and cons of buying a home. When purchasing a home a consumer may be buying for a better environment and future for a family, additional space, or for privacy that the consumer is not getting in an apartment setting. Now let us consider what they will give up to get the home. Most things in life come at a cost. In this case, the cost may be decreasing the amount of money in a savings account. The loss of savings may mean the person buying the home is trading off a potential future vacation, financial security if a job is lost, or even a down payment on a new car. These alternatives to the home purchase are all things the consumer gives up to purchase the home and are considered tradeoffs. The second principle goes hand in hand with the first. This principle states, “The cost of something is what you give up to get it.” (Mankiw, 2007) To understand this, a person must look at the opportunity cost of the home. According to investopedia.com, opportunity cost is “The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.” (Investopedia ULC, 2010) If a person were to decide to purchase a new home, they will be giving up the old residence and the security that went with it. The opportunity cost in this case is not only the
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This note was uploaded on 07/19/2011 for the course XECO 212 taught by Professor Cohen during the Spring '10 term at University of Phoenix.

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Final Project- A New House � Decision- week 9- day 7...

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