Re: A Practical Puzzle
F. Rojas wrote earlier: "Having someone install an appliance correctly would be another thing to consider in solving your puzzle." * * * * * * Is this a variation of the eternal riddle? Q: How many economists does it take to install a dishwasher in a new home? A: None. They just assume it's already installed. The riddle variations on appliances (and lightbulbs) are endless. New York, NY
Re: A Practical Puzzle
> 1. Buy it outright from Home Depot. (sticker price is cheaper) I don't know if this is an economic point, but what do you count as an "appliance" - I presume refridgerators and oven and the like. It seems that these could be installed without any difficulty, even by the likes of Dr. Caplan, but are there other appliances that would require some expertise? Most things requiring connection to plumbing, like dish washers, might need the assistance of somebody knowledgeable (unless you assume Home DEpot will install it). Having someone install an appliance correctly would be another thing to consider in solving your puzzle. -fabio
Re: A Practical Puzzle
Campbell, Dr. Noel D. wrote: > > This won't change the math, but private individuals are unlikely to buy > typical "builder grade" (read: shoddy) appliances at Home Depot. Perhaps we > should also consider the relative quality of the appliances. People at Home Depot that I talked too said that they usually charge 30% less for identical appliances. -- Prof. Bryan Caplan [EMAIL PROTECTED] http://www.gmu.edu/departments/economics/bcaplan "What a lot of trouble to prove in political economy that two and two make four; and if you succeed in doing so, people cry, 'It is so clear that it is boring.' Then they vote as if you had never proved anything at all." --Frederic Bastiat, "What Is Seen and What is Not Seen"
RE: A Practical Puzzle
This won't change the math, but private individuals are unlikely to buy
typical "builder grade" (read: shoddy) appliances at Home Depot. Perhaps we
should also consider the relative quality of the appliances.
Noel
>= Original Message From [EMAIL PROTECTED] =
>Here's a puzzle of much practical interest to me.
>
>Suppose you have two ways of buying an appliance.
>
>1. Buy it outright from Home Depot. (sticker price is cheaper)
>2. Have the home builder do it for you and include it in the price of
>your home. (home mortgage is deductible)
>
>The most natural way for me to attack this problem is to convert
>everything into real monthly payments.
>
>So then I figure that the monthly payment to Home Depot is essentially
>the foregone return on stock:
>
>Home Depot Price *
>{(Nominal Stock ROR * [1-cap gains tax rate])-inflation}
>
>And I figure the monthly payment on the mortgage is:
>
>Builder Price *
>{(Mortgage Interest * [1-family marginal rate])-inflation}
>
>Does this look internally consistent to you? Is there anything this
>approximation is ignoring (risk aversion aside)?
>
>OK, suppose that:
>
>Nominal Stock ROR=13%
>Cap Gains Tax Rate=20%
>Mortgage Interest=8%
>Family Marginal Rate=40%
>Inflation=2%
>
>Find the critical price ratio that leaves you indifferent between Home
>Depot and the Builder.
>--
>Prof. Bryan Caplan [EMAIL PROTECTED]
>http://www.gmu.edu/departments/economics/bcaplan
>
> "What a lot of trouble to prove in political economy that two and
> two make four; and if you succeed in doing so, people cry, 'It is
> so clear that it is boring.' Then they vote as if you had never
> proved anything at all."
> --Frederic Bastiat, "What Is Seen and What is Not Seen"
