Changes

4.  Suppose you plan to buy a brand new car for $25,000.  When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it.  The dealer says it was returned by someone after driving it only 100 miles.  You like the color and ask if you can buy it.  The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold.  You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it.  But you notice that other people (the “market”) would not pay full price for a returned car.  Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?

4.  Suppose you plan to buy a brand new car for $25,000.  When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it.  The dealer says it was returned by someone after driving it only 100 miles.  You like the color and ask if you can buy it.  The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold.  You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it.  But you notice that other people (the “market”) would not pay full price for a returned car.  Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?

:In order to get the higher consumer surplus, you should tell the dealer to sell it to you at the price you would have payed for it on the free market,instead of telling him you would buy it for the brand new price. This way the total benefit cost (free market) - total cost (full price) = consumer benefit ( how much money you were saving because you were buying the car for less then you planned).  (Deborah)

:In order to get the higher consumer surplus, you should tell the dealer to sell it to you at the price you would have payed for it on the free market, instead of telling him you would buy it for the brand new price. This way the total benefit cost (free market) - total cost (full price) = consumer benefit (how much money you were saving because you were buying the car for less then you planned).  (Deborah)

 

:You tell the dealer that you are willing to pay $20,000 for the car that was used because the value of that used car drastically decreases when it was ridden. When the dealer realized that his chance to take advantage of your personal preferences has vanished he will sell you the car because it would benefit him too. The one thing about cars which helps the consumer but not the seller is that the first couple of miles decrease the value by a lot. It is cheaper to buy a car that was used slightly than pay for a new overly price car. Even though the dealer did not get as much as he could have if you had followed your personal preferences, he should consider himself very lucky because it is hard to sell a use car that was specially made for someone else. Your overall consumer surplus was increased by $5,000 because instead of following your personal preferences (in which you would gain now consumer’s surplus except the happiness of owning a new car) you followed the “market”. The free market is always there to help you out. (Veronika)

5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right.  Extra credit:  why must its slope be negative 1?

5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right.  Extra credit:  why must its slope be negative 1?

8.  "A penny saved is a penny earned!"  In fact, once taxation is taken into account, "a penny saved is almost two pennies earned!"  Discuss one or both of these quotations.

8.  "A penny saved is a penny earned!"  In fact, once taxation is taken into account, "a penny saved is almost two pennies earned!"  Discuss one or both of these quotations.

9. Do you think a Giffen good really exists?  Can you see any possible political bias in the claim that Giffen goods exist?  Your views, please.

9. Do you think a Giffen good really exists?  Can you see any possible political bias in the claim that Giffen goods exist?  Your views, please.