Question

In: Finance

Distinguish between needs and wants, and explain why it may be better to act as if...

Distinguish between needs and wants, and explain why it may be better to act as if no needs exist.


Explain why lease payments for a new vehicle are lower than loan payments for the same vehicle.


How do you choose between a low interest rate and a rebate?


What three aspects of a vehicle purchase should be negotiated? In what order?


Distinguish between mediation and arbitration.

Solutions

Expert Solution

Needs are the basic requirement needed for the survival and sustinance of the human beings , while wants are defined as physiological desire to obtain something.

  • Needs are classified into 5 categories as per the Maslow's need hierarchy theory while wants are classified into 3 categories.
  • Physiological , safety , Social , esteem and Self actualization are the main 5 categories of needs while the 3 categories of wants are necessity , comfort, luxury.
  • Fulfilment of one level of needs urges motivates individual to strive for higher level in needs. While wants do not motivate as it depends on desire something materialistic .

It has been said that fulfillment of one level of needs urges the individual to towards higher level of needs. As such the satisfying power of the individual keeps on rising and this may prove to be detrimental if the subsequent level of needs are not fulfilled. Hence it is better to act as if no need exists as it would help in self satisfaction within the boundaries of achievement of a person.

PART II

Lease payment vs Loan payment

In leasing a specified amount of charge is levied by the lessor for a particular asset to be leased. The terms of the lease is fixed and the ownership of the asset still remains with the lessor of the asset. As such only the usage rights are transferred to the user or client and on the end of the lease period the asset reverts back to its original owner.

But in case of loan payment , the asset or the vehicle is owned by the customer from the very first day the loan contact is undertaken while the legal title may be transferred at the beginning or at the end of the payment period.

  • In loan payment the Complete cost of the asset along with the periodic interest payments are amortized into installment to the purchaser.
  • There is no interest in case of lease payment , and only the lease rentals are charged .

Hence for the same asset (vehicle) lease payments are lower than the installment payment for the above mentioned reasons.


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