The cost of something is what you give up to get it. When buying a house I will need to evaluate the difference between the cost of the house and the expected value or benefits from the house (Slembeck, 2007). When buying the house I need to evaluate how the cost of the house compares to the cost of missed opportunities. Finally, people respond to incentives, this principal will be a major influence when making the decision (Slembeck, 2007). This means that my decision will tend to follow incentives offered by the different sellers in the market.
According to the principal, I will consider purchasing the house from the seller who offers the best discount. Marginal benefits are the additional utility or satisfaction that a person derives from the consumption of an additional unit of a particular commodity. On the other hand, the marginal cost refers to the opportunity cost of acquiring an additional unit of a particular commodity. In the cases of purchasing the house, marginal benefits will refer to the satisfaction derived from a second and subsequent consumption of a commodity (Hirshleifer, Glazer, & Hirshleifer, 2005).
The marginal benefit of a house diminishes steadily after acquiring the first unit this is because a person cannot live in two houses simultaneously. This implies that people will tend to spend their money to acquire other items after acquiring their first house. Similarly, first-time homebuyers will consider their first house as an additional unit. In this case, the house will have a higher marginal benefit that compares well with the missed opportunities. The marginal cost of an item refers to the opportunity cost incurred from acquiring an extra unit of a particular commodity.
The opportunity cost of a house is, therefore, the cost of missed opportunities resulting from the acquisition of a second and subsequent house. The marginal cost of a house increases steadily after acquiring the first house since a person can only live in one house at a given time. After acquiring, the first house people will consider acquiring other commodities instead of an additional house.
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