You Just Bought a New Car for $125,000

question 42

Multiple Choice

You just bought a new car for $125,000.Before you had time to get insurance,the car was wrecked.Weird Wally offers to take it off your hands for $10,000.You can then purchase a similar model for $128,000.A body-shop with an excellent reputation offers to rebuild it for $90,000 and loan you a similar model while the vehicle is being rebuilt.Once rebuilt,the body-shop claims,it will run like a new car and nobody will be able to tell the difference.What would you do from a financial point of view?

• A)Rebuild to save $13,000.
• B)Rebuild to save $28,000.
• C)Rebuild to save $38,000.
• D)Sell to Weird Wally and save $7,000.
• $128,000-10,000 = $118,000;$118,000 - $90,000 = $28,000 benefit to rebuild

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Definitions:

Monopsony Wage Rate

The wage rate determined in a market where there is only one buyer of labor, giving this buyer significant power over the wage rate.

Economic Rents

Extra earnings above the minimum level required to keep a resource in its current use, often associated with scarce resources or monopolistic markets.

Non-Union Workers

Employees who are not members of a labor union and typically do not receive the collective bargaining benefits that unionized workers do.

Wage Discrimination

The practice of paying different wages to employees for the same type of work based on race, gender, age, or other irrelevant factors.