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 start using lower discount rates, then the net present value of education increases, meaning that the benefits of education are perceived as being worth more. This would result in an increase in demand for education.

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