Marginal Cost or Benefits
Consumers need to determine if they should make or reject a certain decision by using marginal costs or benefits. Marginal costs refer to the change in cost over the change in quantity while marginal benefits refer to the change in benefits over the change in quantity (“Marginal Costs & Benefits”, n.d.). When it comes to a decision in purchasing a home, the strength of the economy could affect the marginal costs and the marginal benefits. During the times of economic growth, the consumer who purchases a new house might feel that they have made a good decision because this will allow them to live in an enjoyable and comfortable environment. During these periods, consumers feel that they do not have to worry about their mortgage or spending since they are optimistic about the economy’s situation because they feel that the marginal benefits overpowers the marginal costs. But then again, the consumers might feel that purchasing a new home during the times of recession is a bad choice because they are worrying about getting retrenches and they would also prefer to save money at that moment. When this happens, the consumers will feel that the marginal cost overpowers the marginal benefits. When tax deductions are removed on a mortgage the interest will lower the demand for homes since this reduces the benefits that a consumer can enjoy while purchasing a new home. There can also be other possibilities that could affect a consumer’s decision when it comes to purchasing a home. For example, when there becomes an increase in income taxes, the consumers will have less income and have a lesser chance in purchasing a home. This can also have a reduction in demanding for houses as well. Alternatively, the government needs to increase their government spending by building better infrastructures, this will help to promote the economic growth and attract investments. With this result, the consumer’s will be able and willing to purchase a new home and this will also help