You Are Planning to Buy a New Car

question 18

Essay

You are planning to buy a new car.Based on your market research you have narrowed the decision to a choice between a Honda Civic and a Toyota Corolla.Since you are indifferent between the two vehicles you decide to base you decision on relevant cost only.You will be trading in your current vehicle which you purchased used a year ago.You expect to keep the new vehicle for five years.You have gathered the following data for use in your decision:

Required:
A.Which if any of the listed costs above are not relevant to your decision?
B.What are the total relevant costs and allowances of purchasing the Civic?
C.What are the total relevant costs and allowances of purchasing the Corolla?
D.What is the differential cost involved in your decision?

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Definitions:

Tax Revenue

The income that is gained by governments through taxation, which is used to fund public services, infrastructure, and government operations.

Marginal Rate Of Substitution

The rate at which a consumer is willing to trade one good for another while maintaining the same level of utility.

Marginal Rate Of Transformation

The rate at which one good must be sacrificed to produce one additional unit of another good, holding technology and resources constant.

Economic Outcome

The result of economic activities, often measured in terms of growth, employment, and inflation.