Suzy Wants to Buy a House but Does Not Want

question 101

Essay

Suzy wants to buy a house but does not want to get a loan. The average price of her dream house is $500,000 and its price is growing at 5 percent per year. How much should Suzy invest in a project at the end of each year for the next 5 years in order to accumulate enough money to buy her dream house with cash at the end of the fifth year? Assume the project pays 12 percent rate of return.

Identify the concept of informational cascades and their role in economic bubbles.

Analyze the importance of social awareness on market outcomes, especially in the context of energy consumption.

Understand the dynamics of housing prices leading up to and following the 2008 crisis.

Realize the risks and rationales behind investing in economic bubbles.

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Definitions:

Sequential Game

A type of game theory where players make decisions one after another, with each decision influencing future actions.

Payoff-Matrix

A table that shows the potential outcomes or payoffs of different strategies for two or more players in a game.

Game-Tree

A graphical representation of the possible moves in a game, showing the sequential nature of players' actions and choices.

Allocative Efficiency

A state of the economy where resources are distributed in a way that maximizes the net benefit to society, meaning that goods and services are produced and consumed at quantities where the marginal benefit equals marginal cost.