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?

Question

Quizplus · Accepted Answer

If consumers started to use lower discount rates (i.e., valuing future benefits more highly), the net present value of education would increase. This would encourage more people to pursue education, leading to an increase in demand for education. Therefore, the best choice is D.

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