Concepts For Buying a Car: Incentive, Trade Offs, Opportunity Costs
Three concepts that make a significant impact in decision making are incentive, trade offs, and opportunity costs. The incentive is what draws you in and what you stand to gain by doing an activity or buying a product. Trade offs are what you have to give up in order to acquire the product. The opportunity cost is the estimated cost that is not only the cost of the product, but the cost of everything regarding the product, including time you spent that you could have used for something else. A day to day use for all of these concepts is when we purchase a car. Is there an incentive? Does it have any special features that I like? The incentive for buying a car can be anything from an event where you save money, mpg or even special luxury features. Are there any trade offs? "Well I could get leather and navigation, but it would cost a little bit more."or "I could get the fuel efficient car for more money, but with all the money i save on gas it could pay itself off in 15 years.". What is the opportunity cost? How much will this car really cost me? Factors that play into this are pricing for the car, tax and licensing, gas milage and how much will this car cost to insure. Many people use this without even knowing what they are doing. People think well if I get a fuel efficient car I will save money thus the car will pay itself off. They are taking the price of the car and then factoring in their current gas expenses and taking the money they save and subtract it from the total cost of the car in their head. All these factors play into buying a car.
