January 19 2017
Due back Jan 26, in class.
1. (Tadelis p.12) You plan on buying a used car. You have $12,000 and you are not
eligible for any loans. the prices of available cars on the lot are given as follows:
Make, model and year Price Toyota Corolla 2002 9350
Toyota Camry 2001 10500
Buick Lesabre 2001 8825
Honda Civic 2000 9215
Subaru Impreza 2000 9690
For any given year, you prefer a Camry to an Impreza, an Impreza to a Corolla, a
Corolla to a Civic, and a Civic to a LeSabre. For any given year, you are willing to
pay $999 to move from any given car to the next preferred one. For example, if the
price of the Corolla is z, then you are willing to buy it rather than a Civic if the Civic
costs more than z−999 but prefer the civic if it costs less than this. For any given car, you are willing to move to a model a year older if it is cheaper by at least $500. For
example, if the price of a 2003 Civic is x, then you are willing to buy it rather than a
2002 Civic, if the 2002 Civic costs more than x−500.
(a) What is your set of possible alternatives?
(b) What are your preferences between each pair of alternatives in your set?
(c) What car would you choose?
2. Harrington, end of Chapter 2, #1
3. Harrington, end of Chapter 2, #6
4. Harrington, end of Chapter 2, #9.