Archive fortrade offs

Appeal to Out of State Students

Many “undistinguished state institutions”have recently experienced a significant decline in demand causing a notable decline in enrollment. In order to raise the demand, some colleges are considering cutting the out-of-state surcharges entirely. However, because of the revenue raised from admitting out-of state-students and charging them additionally, the colleges must be able to enroll at least 50% more out of staters to maintain the revenue that the college generated beforehand. The rise in out-of-state students is anticipated with an increase in costs as the marginal cost will be above zero to accommodate the spike in enrollees. However, though the marginal cost is kept low, it may be too much to run a successful university. The article goes to explain that international and out-of-state students are more inclined and have been proven to be drawn to flagship state universities with higher surcharges as the students consider the value of these more recognized schools to the less expensive schools. The supply of the “undistinguished” schools appeals to draw more people in at a lower cost, but the demand does not change. The marginal benefit of attending a more recognized state school overrides the monetary cost and benefit of the cheaper schools and therefore, the demand for the former type of universities remains high and fairly inelastic.


Switching Cost Of Phone Providers

The article, The High Cost Of Loving Your Phone, by Damon Darlin outlines the ideas of how firms in oligopolies and monopolistic competitive markets use high switching cost to ensure that it keeps its customers from switching from itself and to another supplier. It does so by showing that consumers have a hard time switching from one phone provider to another because A, the consumers has non-transferable messages, photos, and a number that holds ‘priceless’ memories, or B, there is a social standard that a customer may be switching from. One the contrary, It also shows an example where a switching cost is eliminated (previously consumers weren’t able to keep their phone number when they switched, but now they are able to), and how a large majority of individual firms responded (They lowered their prices because now the market resemble more of a competitive market rather than a monopolistic competitive market). Ultimately, Loving one’s phone is costly because of the high switching cost associated with phones, and the fact that a new and better phone that a consumer may wish to have (but can’t because of switching cost) may be release from a another providers.

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Economics Nobel prize winners: theories explained

The Nobel prize in Economics this year went to Oliver Hart and Bengt Holmström for their research on contracts and corporations. While their work can be highly technical, one of our textbook authors, Tyler Cowen, explains some of their findings here. Some of their work explains how contracts can be well-designed. Other work by Holmström shows that in other cases, such as medical insurance deductions, “there isn’t a rigorous way to get this trade-off just right.”