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

2. 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.

3. 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

4. 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

5. 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

6. Example:
Tuition and Fees for In-State Undergraduate Residents at Selected Schools by semester, (15 credits):
NPuofu = $2,902
NPusu = $2,414
NPuofc = $4,243
The relative price shows how tuition and fees compare to the base school...

7. 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

8. 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

9. 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.

10. January 1914 – March 2009

11. 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%

12. 5 Important Components of Goals (SMART):
Specific
Measurable
Attainable
Realistic
Timely