You are considering whether to purchase a new car for personal use to replace your present car.
Question:
You are considering whether to purchase a new car for personal use to replace your present car. Being strictly rational in an economic sense, which of the following cost data would you include in making your decision?
a. Original cost of the present car.
b. Trade-in value of your present car.
c. Maintenance costs on the present car.
d. Maintenance costs on the new car.
e. Fuel consumption on the present car.
/. Fuel consumption on the new car.
g. Cost of parking permits, garage rental, and similar storage costs.
h. Liability insurance on the present car.
/. Liability insurance on the new car.
j. Property and collision insurance on the present car.
k. Property and collision insurance on the new car.
/. Changes in the relative frequency of your friends saying, "Let's use your car since it's newer," and the related costs of using the new car.
You should be able to give reasons why each element should or should not be included in your analysis. (Hint: Which costs will be differential, that is, will be different if the new car is purchased?)
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