Suppose That Many Consumers Tend to Over-State the Discount Rate

question 140

Multiple Choice

Suppose that many consumers tend to over-state the discount rate that should be used for computing the net present value of education, just as they do when making investments in durable goods like cars and appliances. What would happen if consumers (as a group) started to use lower discount rates when making decisions about their education?

• A) NPV of a degree declines, demand for eduction declines
• B) NPV of a degree declines, demand for education increases
• C) NPV of a degree increases, demand for education declines
• D) NPV of a degree increases, demand for education increases

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Definitions:

Cost Of Goods Sold

The direct expenses incurred in making the goods a company sells.

Variable Cost

Costs that change in proportion to the level of production or sales activities in a company, such as raw materials and labor expenses.

Fixed Cost

Costs that remain constant in total regardless of changes in the level of production or sales over a certain period of time, such as rent, salaries, and insurance.

Product Cost

The total amount of expenses incurred to produce a product, including direct labor, materials, and overhead.