Hey I was wondering if anyone could help me with this question: You have probabl

Question

Hey I was wondering if anyone could help me with this question:

You have probably heart it said "Students almost always have the option of purcashing a used or new textbook. Although the used book is lower in quality, it also sells for a lower price. Assume that a set of new books costs $1000, and that the set of used books costs $500. Suppose that tuition costs $6000.

Now consider two students. The first is Emily, and her father teaches at her university so she pays no tuition. The second is her friend Courtney who has to pay the full tuition. Using the LAW OF DEMAND, predict and explain which student is more likely to purchase new books and which is more likely to purchase new ones?

Explanation / Answer

In this case, for emily the income effect outweighs the substitution effect and she would purchase the new textbook because she can afford a higher quality and her demand for textbooks is more inelastic. When the price rises or in this case is higher, emily wants to purchase this book. On the other hand, Courtney has to pay tuition and the substitution effect outweighs the income effect therefore, the law of demand in her inverse demand function requires her to purchase more and feel good about the purchase as the price goes down or in this case is cheaper than the new book. Hope this helps

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---