Pubpol Module 2 Quiz Review - 1. What is the opportunity...

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1. What is the opportunity cost of college? The direct cost? Opportunity cost: Wages foregone, had you chose to work instead of go to college Direct cost: What you actually pay, i.e. tuition, books and fees. Actual cost: Opportunity cost + Direct cost 2. Present Discounted Value The present value of money gained in the future, discounted to reflect the loss of the moneys personal value over time. Money in the future is worth less to us in the present. Why? i. Time preference of money – humans prefer things sooner ii. Interest foregone These two things added together = PERSONAL Discount Rate – used to discount the value of money Calculating payoff. How? Future earnings at Present Discounted Value VS. Current possible earnings – this is the only way you can calculate to see how much it is worth now. 3. Economists assert that humans will choose to consume a good or service as long as MB > MC. Explain how the evaluation of MB and MC may impact consumption decisions about college Marginal (1 extra unit, in this case, 1 extra year of schooling) Cost = Opportunity cost + Direct Cost for a year Marginal benefit , everything you earn after college until retirement If Marginal Cost begins to outweigh the Marginal Benefit of going to college, humans will be put off by the cost of college and choose not to go because cost will outweigh the benefit of going to college. You will undervalue benefits from college if you only consider the MB at this point in time 4. Why would someone choose to go to college if the monetary benefit attending college in 2012 is less than it was in 2000? You are comparing yourself now to people who didn’t go to college. Because you cant go
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This note was uploaded on 01/17/2012 for the course PUBLIC POL 201 taught by Professor Paulcourant during the Fall '11 term at University of Michigan.

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Pubpol Module 2 Quiz Review - 1. What is the opportunity...

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