"Economic models help managers and economists analyze the economic decision making process. Each model relies on a number of assumptions, or basic factors that are present in all decision situations. Almost everyone in society engages in economic decision making at some point, from the billionaire investing in real estate, to the small business owner signing a contract with a supplier, to the teenager buying a video game (Ingram, 2017) Decisions are made routinely to choose one alternative over another by individuals in everyday life; which car or house to buy, financing alternative such as the amount of down payment, or the loan time. Each one will make his/her decision of those alternatives and make a choice based on different circumstances such as available resources Smith family (husband, wife, and three kids) recently moved to Auburn, AL. Both the husband and the wife are employees at Auburn University. The husband has a yearly contract of $120K/year, and the wife is working part time for $2k per month. The couples are renting a house now for $1100/month, and pay additional $300/month for other bills (water, electricity). Currently they pay $700/month for child daycare $400/month on a 0% APR car loan that will end on June 2021, $350/month on another 3% APR car loan that will end on January 2018, $650/6 month cars insurance. $1500/month for grocery, $600/month pre-tax for health insurance, $100/month medical expenses, $300/month gas and car maintenance, and $700/month for other expenses (clothes, home decoration, ). The family save 8% of their income for retirement (pre- tax) Smith family would like to take a mortgage to purchase new house. But it is not necessary to do it now. If they decided to buy a house now, they can pay $0 as down payment. They are considering the two houses below: 1. 3-bedroom house for $250K. House tax = $1000 per year 2, Luxury 4-bedroom house for $450k. House tax = $2200 per year Purchasing any house requires $6k cash payment for closeout, and if the down payment is less than 20% they should pay for mortgage insurance. The mortgage insurance is estimated to be 0.06% of the house price per month. Also, the mortgage interest rate depends on the down payment and the mortgage period. The family can