Chapter 1 Revision

Link: http://www.economist.com/business/displaystory.cfm?story_id=12270958

Summary

The topic of the article is about the manufacturing of automobiles and bicycles and how the price of oil is affecting the sales of both automobiles and bicycles. Around the world, prices of oil and gas are rising at a tremendous speed and this is causing a decrease in sales for the automotive companies. As people are bombarded with high costs of driving a car, many are switching to a much eco-friendly way of getting around and that way is bicycles. So the demand of automobiles is at a standstill, whereas the demand of bicycles is rising tremendously.

Connection

Purchasing a car is the second biggest spending decision we face as consumers next to buying a home and when we purchase things, there is always a direct and opportunity cost. Lets say you bought a car for $20,000 and had it for 3 years. During that time, you hand over $5,000 for loan interest, $700 per year for insurance, $200 per month for gas, and $500 per year for maintenance. Your total for this car and direct cost would be $34,900.

Lets say you decided that you didn’t want to buy a car and you invest that money in a bank at 10% per year. So at the end of 3 years you would have $46,452. So, in the end, your direct cost of owning a $20,00 car was 34,900 and you lost out on the potential to earn an additional $11,552 by investing that money instead. So the opportunity cost of owning a $20,000 car for 3 years will add up to $46,452 ($34,900+ $11,552).

If the price of gas and oil continue to rise the cost of owning a car will also rise which will make the consumer think twice when purchasing/using a car and will probably switch to a bicycle, a more affordable and Eco-friendly way of traveling.

Reflection

I believe that this is a good direction we are heading towards. If more and more people decide not to purchase an automobile or switch from an automobile to bicycle, automobiles will be the thing of the past. Riding a bicycle to work or school has many benefits such as losing weight, healthier lifestyle, lowering the risk of heart attack, reducing stress and spending more time outside. This will reduce the emission of greenhouse gases dramatically, so you will be helping the Earth too.