Shelter is one of the basic human needs; international and national human rights provide the right to have adequate, quality and good shelter. Different economies provide for different ways to have shelter; these ways include renting, purchasing, leasing or use of government houses. The method of having shelter that one adopts is dependent on an individual’s economic and social standing in the economy as well as some personality and lifestyle attributes.
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With the limited resources I have, I would prefer to purchase a house instead of renting or using government facilities; the reason for my decision is that the economy has various mechanisms that I can utilize to have my own house.
Some of the facility that I world utilize are mortgage and cash deposits. With my current financial standing the facility that is affordable and available for me is mortgage facility.
A mortgage is important in that it offers the contractor (buyer of the house) a chance to own a house and pay in instalment depending with the cost of the facility and the income of the contractor. The instalment payable will allow the policyholder to be staying in a house with adequate facilities with the anticipation that in the future he/she will fully own the house.
If the house had been rented, the beneficially of rent payable will be the owner of the house to the disadvantage of the tenants. When paying mortgage the interest paid is a deductible allowance when calculating individual tax payable do the holder of a mortgage policy will enjoy reduced taxes.
There are different specifications for mortgage; some houses are already built by the mortgage provider while other policies allow the policy holder to specify the king of house that he wants built; this offers severity to the policy holder thus he can get what he want (Bhagwati, 2004).
Principles of economics are directly related to the purchasing decision
Economics can be divided into macroeconomics and microeconomics; since the decision to purchase a house is a personal decision, it falls under microeconomics. When making the decision forces of supply and demand will determine the house price, the expenditure is home consumption expenditure where an individual will own a house.
In the transaction, there will be number of macro-economic policies operating in the economy; these policies include, taxation policies, government incentives given to the mortgage issuing company to make the facilities affordable and interest rate policies that the government has embarked in the economy to ensure that loan facilities are affordable to the public.
Taxation policies apply to the deductibility of interest paid on the mortgage from individual taxes computation; the government has also taxation allowances to developers of mortgage facilities in the efforts of ensuring that the entire population has adequate housing equipped with necessary housing facilities as required by human rights both domestically and internationally.
Housing as a whole is an issue of macro-economic concern where the government has the role of ensuring that its population has access to adequate and houses of good standards. The rise in population has put pressure on available housing and sanitation facilities calling for government economic intervention to that effect.
Another economic policy that can be seen in the house purchase decision is lifestyle and living standards improvement; it is the role of the government to ensure that the population is having an improved living standard; when I buy the house, I will ensure that I move to an estate that has better facilities than my current estate. This way I will have improved my living standard; improving living standard is a matter of both microeconomics and macroeconomics (Hilary, 2006).
Compares the marginal benefits and the marginal costs associated with the decision of whether to buy a house
When I buy a house, I will be required to pay an extra fee over and above the amount that I am paying for my rented house; the extra cost and the expense benefits that I would have used the money with are the marginal cost that I am going to incur. The marginal benefits that I will benefit from include the freedom that I will start enjoying immediately after the purchase and finally the ownership of the facility.
Freedom is a benefit that cannot be quantifies in financial terms, if offers an individual psychological comfort and self-esteem, which are virtues/ attributes that human beings look for in their entire life. When I have my own house, I will be able to do what I want, anytime I want it as long as I will not be infringing someone else’s human rights.
A rational buyer will have to consider marginal benefits (MB); which is the sum of both economic and social benefits and compare with marginal costs (MC) (both economic and social costs) then if MB˃MC, the house purchase is worth (Blanchard, 2000).
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How marginal benefit and cost are affected by economic strength of the economy
The supply and demand forces in an economy affect the cost of the housing; on their part, economic strength plays a crucial role in controlling market forces dynamics. If the economy is well developed, then there are likely to have a large number of houses developed for mortgage reasons; these buildings will be on high demand from an economy with stable income.
The result of such a market is the intervention of the government to facilitate in trade of such facilities. In terms of marginal cost, the buyer of the facility is likely to enjoy low costs of the building thus, the marginal costs will be reduced.
In the efforts of increasing the welfare of it citizens, developed economies are more concerned on provision of social amenities to its citizens; the new purchase will be to an area that is higher in the services that my current state so the marginal benefits will be increased.
In the case of low developed economies, the cost of the house is high since the governments major concerns in the economies is revenue from different sectors of the economy; it is thus unlikely to regulate prices down wards. The marginal cost will be higher than the cost in the case of developed economy, however the cost is lower than the marginal benefit in whichever the case.
The strength of an economy has minimal effect on the marginal benefit and marginal costs that someone purchasing a house have; the main concern is that the marginal benefit are higher than marginal costs in whichever the case (Gills, & Thompson, 2006).
Considers the roles of the domestic economy and international trade in the assessment of the strength of the economy
International trade is the exchange of goods, services or/and capital between different countries; it has been in existence many years ago although much of its significance has been recognized recently. It has continually strengthened economically, politically, and socially with many countries participation. It has benefited nations with variety of options to choose from, which they would not have accessed without it.
There is some evidence from both small and large economies of the benefit of international trade and affect their economic, social and political strength.
As nations trade among themselves, the citizens’ benefit, there is a wide variety of goods and services, increased employment opportunities, and improvements in health and standards of living, which are some of the parameters that are used to gauge the strength of a country economy. International trade has brought about economic integration that has promoted corporation among nations.
Nations can seek help or assistance from other international countries in times of difficulties; countries that were not able to venture into the international market because of trade restrictions have been able to do so with free trade. International trade has also helped nations in realizing their potential and growing economically.
Some nations are well known for the production of petroleum products while others are popular for the production of agricultural products such as coffee and tea; the integration and trade ensures that every country has the products it requires whether it produces them or not.
Another effect of international trade and domestic markets is balance of payment (BOP’s) and foreign currency. A country with a strong domestic market that produces more exports (in foreign currency terms) than the imports has a good balance of payment and its currency strength is stronger than that of a net importer.
With international trade, information can be shared and dispersed easily among nations. Innovators get a platform for borrowing ideas to assist them in their inventions. How well company domestic companies are able to produce goods for international trade affects the economic strength of the country at hand (Blaug, 1985).
Determines what situations or conditions could have led to a different decision.
The decision to buy a house is strategic and should be made at an appropriate time; the major parameters to consider when buying the house are interest rate, cost of the building, inflation and world economic performance. If the mortgage interest were higher than the normal cost of capital (COC), then this would not be an appropriate time to purchase the house since the final cost of the house would be high.
When the economy has high rate of inflation, it means that the demand for mortgage will be higher since there are the available resources making the forces of supply and demand work to increase the cost of the house meet a number of potential buyers who might not meet effectively.
The world is facing recovery from financial crisis which started in 2007, the crisis where believed to have originated from the housing industry; with the situation that prevailed in mind, I would only buy a house when the world economies are operating at optimal rate so as I don’t buy a house with an exaggerated cost. As a rational buyer, I would buy the house when its cost is at minimum without compromising on its quality (Leet & Charkins, 1996).
Bhagwati, J. N. (2004). In defense of globalization A Council on Foreign Relations Book Series. Oxford, Oxford University Press.
Blanchard, O.(2000). Macroeconomics. New Jersey: Prentice Hall.
Blaug, M.(1985). Economic theory in retrospect. Cambridge: Cambridge University Press.
Gills, B., & Thompson, W. R. (2006). Globalization and global history. New York, Routledge
Hilary, F.(2006). New urban housing. London: Laurence King Publishing.
Leet, D.,& Charkins, L. (1996).Personal Decision Making. New York: National Council on Economic Educ.