Economic Choice and Economic Decision Making

Economic Choice and Economic Decision Making

Andrew Rice

ECO/561

September 19, 2016

Susan McMaster

During my life, I have made several purchases that would be considered a larger procurement.  While making an important buying decision, it is important to take into account outside items that may come into play; that can affect a buyer's decision.  The purchase of an automobile is one of these elements where there are outside sources that may influence the decision to make the buy or not.   To efficiently purchase a car, the consumer must be cognizant of fuel costs, interest rates, and vehicle upkeep.  The purpose of this paper is to show how my last purchase of a car was broached, and if everything was effectively brought in to account.  

Interest Rates        

Interest rates are classified as the amount or percentage of the money that is loaned out to a borrower.  The borrower asks for a number, known as the principal sum, and the lender can establish the interest rate according to a litany of items. (Cox, Ingersoll, Ross 2015) The most common factors in interest rate determinations are the debtor’s credit history, the quantity of current income, and if they have an additional person signing on the loan, known as a co-signer.  The better the borrower’s rating, the lower their interest rate should be.  

The most current automobile purchase I have made was in July of 2011.  For my purchase, there were many options for financing the vehicle.  It was decided that the best option was to go the traditional bank loan and establish them as a lien holder until the debt could be paid off.  When the loan was taken out, my credit rating was considered to be good, and I was able to procure an interest rate of 4.087% annually. (Romer, Romer 2000)  Because of the economic recession, the interest rates had been dropping. The following year, interest rates would fall to 3.638 annually.  The rate was established to be reasonable to my credit rating, along with the current economic trends that were occurring in the country at the time.  

Costs and Income

        The average cost of fuel when I made my vehicle purchase was around $3.78 per gallon.  (EIA Gas Prices 2011) With gas at an all-time high, it was important that I purchased a vehicle that received good ratings regarding gas mileage.  The vehicle that was settled on was the 2010 Chevy Malibu.  This vehicle would give me what I required as far as gas consumption, but enough of a car that I could be comfortable in.  During the time of my purchase, I resided in California, which is known for having gas prices a little higher than that of the national average.