Archive for January, 2019

Real World Graduation, Question 65: Mattress Warranties

RealWorldGraduation_Question_65_MattressWarranties   <– PDF

Joe is at a furniture store to buy a mattress. He tested them all out by lying on them briefly.  He found four mattresses that were comfortable, they are all priced about the same, and all are made by known manufacturers of good reputation.  The only real difference between them is the nature of the manufacturer’s warranty.  He can buy a warranty on Mattress A that consists of a one-year warranty against workmanship flaws; it costs $21.00.   He can buy a warranty on Mattress B that offers a three-year warranty against workmanship flaws which also includes replacement of any broken springs; it costs $74.00.  The manufacturer of Mattress C offers a lifetime warranty against workmanship defects plus a warranty against tears in the fabric and replacement of springs; it costs $91.00.  The manufacturer of Mattress D offers a lifetime warranty on all problems and defects except if the mattress is used for commercial purposes (does not apply to Joe, since he will use his at home); the Mattress D warranty costs $125.00.  Which is the best warranty to buy?

a) Mattress A, because it is the cheapest.

b) Mattress B, because it lasts three years, and most problems occur between one and three years, so is better than Mattress A’s warranty.

c) Mattress C, because it is for the life of the mattress and covers the most common mattress problems

d) Mattress D, because it covers everything for life, and for the few dollars more, offers the best overall protection

e) In general, it won’t matter which one he gets, because there are a wide variety of problems with mattresses. The important thing is to get at least the protection offered by Mattress A, but the other ones are worth considering.

 

(The answer is on p. 2 of the PDF.)

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RealWorldGraduation_Question_64_EconomicConsequences   <– PDF

A local neighborhood gang threw a party, and in the course of having a good time, smashed 1000 beer bottles all over a residential street. The gang members all left the area before the cops showed up, and none were arrested or charged.  The beer had been purchased at a local store, the gang members all paid a deposit to the store on the beer bottles that they subsequently broke.  No matter what you think about parties, or beer, or about gangs in general, consider this action in the economic sense.  In what economic sense did the gang members indirectly perform the most useful economic service?

a) The store that was paid the deposit on the beer bottles gets to keep the deposit paid by the gang members.

b) It is possible that some people will make money when they are paid to clean up the broken beer bottles.

c) Broken beer bottles are a true sign of urban life, and will probably increase the partying type of tourism in that area.

d) Some people will run over the beer bottles and get flat tires, which have to be replaced, which will cause those who manufacture, sell, and install tires will earn money.

e) Some combination of a) and d).

(The answer is on p. 2 of the PDF.)

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