Question

One of the first major decisions that one faces after graduation is getting an apartment. Describe how someone might employ the concepts of trade-offs, opportunity costs, and making decision at the margin in deciding what apartment to rent.

Answer 1

Rental rates vary depending on apartment/room size, location, layout, building age, furnishings, balcony, elevator and amenities etc. Different people have different preference for amenities that they are looking for, and different neighbourhoods also. When choosing between only two apartments, people will need to examine the same number of factors for each apartment. For this cause they will compare on rent, parking, closet space, and laundry facilities for the apartments. Thus were willing to make tradeoffs in this decision. The opportunity cost is furnishings, balcony, elevator and amenities. The marginal benefits and marginal costs of these variables can be appreciated. A person must compare the marginal benefits such as joy, tax shield, and security of rental apartment and marginal cost purchasing apartment such as amortization payments, vis-a vis renting an apartment such as rental payments.