The Chen family has a car loan payment of $310 every month until the loan is paid off, and this amount will not change. They also buy gasoline for the car, spending more in months when they take long road trips and less when they stay home.
Which best classifies these two expenses?
- Both expenses are variable, because the total amount spent on the car changes depending on the month.
- The car loan payment is variable and gasoline spending is fixed, because loans can be paid off early while gas is always needed.
- Both expenses are fixed, because a car requires both a loan payment and gasoline every month.
- The car loan payment is fixed and gasoline spending is variable, because the loan amount stays the same while gas costs depend on driving. (correct answer)
Explanation: This question is about the difference between fixed expenses and variable expenses. A fixed expense stays the same amount every time you pay it, while a variable expense changes from month to month depending on how much you use something. Look at each expense separately. The car loan payment is $310 every single month, and the problem tells you "this amount will not change." That's the definition of a fixed expense. The gasoline spending, on the other hand, goes up during long road trips and down when the family stays home — the amount changes based on how much they drive. That's a variable expense. So the choice stating that the loan payment is fixed and gasoline is variable, because the loan stays the same while gas depends on driving, is correct. The choice saying both are variable is wrong because the loan payment never changes — only the gas does. The choice claiming both are fixed misses that gas spending clearly rises and falls, so it can't be fixed. The reversed choice — calling the loan variable and gas fixed — flips the two ideas; being able to pay a loan off early doesn't make each monthly payment change, and needing gas every month doesn't make its cost stay the same. A helpful tip: don't classify an expense by whether you pay it, but by whether the amount changes. Ask yourself, "Is this the exact same dollar amount each time?" If yes, it's fixed; if it wobbles, it's variable.