proverb 4 just because you don t pay for something doesn t mean it s not costly tanstaafl n.
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Proverb #4: Just because you don’t pay for something doesn’t mean it’s not costly -- TANSTAAFL. Types of Imputed Costs & Benefits:. Imputed interest costs the cost of having your money tied up in a particular resource when it could be earning interest elsewhere. Imputed depreciation

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Proverb #4: Just because you don’t pay for something doesn’t mean it’s not costly -- TANSTAAFL


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proverb 4 just because you don t pay for something doesn t mean it s not costly tanstaafl

Proverb #4: Just because you don’t pay for something doesn’t mean it’s not costly -- TANSTAAFL

types of imputed costs benefits
Types of Imputed Costs & Benefits:
  • Imputed interest costs
    • the cost of having your money tied up in a particular resource when it could be earning interest elsewhere.
  • Imputed depreciation
    • the decline in the value of a resource over time.
  • Imputed appreciation
    • the increase in the value of a resource over time.
example of imputed interest cost
Example of imputed interest cost:
  • Purchasing a new car using cash. What’s the full price of the purchase?
    • List price: $15,000
    • Savings interest rate = 5% /yr
    • You would have otherwise kept the money in the bank for 5 more years if you had not used it to purchase the car
    • Then, the imputed interest costs of paying cash…
      • loss of $15,000(1+.05)5 = $19,144
      • imputed interest costs are:
        • $19,144-$15,000= $4,144
example
Example:
  • In some instances, the imputed interest costs may be so high that it is better to borrow money rather than use your savings…
    • Suppose a 12% annual interest paid on invested money
    • Suppose a 9% annual interest for a secured car loan
    • net gain of $15,000*(.03) = $450 in year 1
  • Be cautious if using this approach – fairly risky
proverb 5 everything s relative
Proverb #5: Everything’s relative
  • Relative prices - the price of one commodity compared to the price of another commodity (i.e., the base commodity)

RPx = relative price of good x

NPx = nominal price of good x

NPb = nominal price of the base commodity

example1
Example:
  • Tuition and Fees for In-State Undergraduate Residents at Selected Schools by semester, 2009-2010 (15 credits):
    • NPuofu = $2,902
    • NPusu = $2,414
    • NPuofc = $4,243
  • The relative price shows how tuition and fees compare to the base school...
example cont
Example (cont.):
  • Using the U of U as the Base Commodity
    • RPuofu = $2,902 / $2,902 = 1.0
    • RPusu = $2,414 / $2,902 = 0.83
    • RPuofc = $4,243 / $2,902 = 1.46
    • Meaning of relative prices…
    • The price of attending the University of Colorado is 1.46 times the price of attending the University of Utah
most common relative price comparison
Most common relative price comparison?

Inflation -the general rate at which the price of a particular good/service or a group of goods/services increases over a specified period of time.

Bottom Line – the purchasing power of the dollar declines over time

inflation measures the purchasing power of a dollar at different points in time
Inflation measures the purchasing power of a dollar at different points in time.
  • In other words, inflation measures the $ you would need to have in year Y+1 to purchase the same basket of goods/services that you purchased in year Y.
http en wikipedia org wiki image us historical inflation svg
http://en.wikipedia.org/wiki/Image:US_Historical_Inflation.svghttp://en.wikipedia.org/wiki/Image:US_Historical_Inflation.svg

January 1914 – March 2009

related concepts
Related Concepts...
  • Escalating Inflation (Increasing Inflation Rates)
    • prices rise at an increasing rate
      • 3%, 4%, 7%
  • Disinflation (Decreasing Inflation Rates)
    • prices rise at a decreasing rate
      • 6%, 5%, 3.5%
  • Deflation (Prices Decreasing)
    • prices decline
      • -1%, -2%, -1%
5 important components of goals smart
5 Important Components of Goals (SMART):
  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Timely