Another math story

by coberly

I was listening to radio for smart people the other day when they did
a piece about the effect of high gas prices on the price of gas
guzzling cars.

They followed the owner of a very high-end SUV as he drove into the
used car lot and asked how much he could get for his car. He told
the radio person he just couldn’t afford the gas, and he was hoping
to get about seventy thousand dollars for the car. The appraiser
came back with an offer of thirty thousand. I am sure I heard the
man wince; then he wandered off to think about it.

Here, the learned economist stepped up to the microphone and told the
radio person that the owner of this SUV was about to make an
irrational decision.

Look he said, last year gas was 3 dollars a gallon. This year it is
four. So if he uses a thousand gallons a year, the difference is a
thousand dollars. And to save a thousand dollars he is about to lose

Well, I was thinking about the same thing myself, so I can’t be too
hard on the economist; but he sounded a little too smug for my
taste, so I wondered.

First, I wondered if that thousand extra dollars for gas next year
was just about a thousand dollars more than the man had to spend. I
don’t think economists have ever learned that a dollar is a much
bigger deal to the man who has one less than he needs than it is to
the man who has one more than he needs.

But then I imagined the man thinking: If I sell the SUV for thirty
thousand and turn around and buy a car for thirty thousand that gets
30 miles to the gallon, instead of the 10 that the SUV gets, then
after ten years I will have a car worth maybe ten thousand dollars,
and I will have spent about 13,000 on gas. But if I keep the SUV
another ten years, even if I can get 30,000 for it then, I will have
spent 40.000 on gas. Looks to me like letting go of the SUV will
cost me about 8,000 over ten years, but keeping it will cost me 10,000.

So the question is whether I need to have the 2600 a year between now
and then more than I need the pleasure of owning that expensive car.

So who is right? The hapless owner, or the learned economist?
This one by coberly