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the shortage at college B, so the “price” to get
into college A will rise by more than it will
rise at college B. The “price” of getting into
college is usually measured in terms of high
school academic performance (in other
words, GPA and SAT or ACT scores.) The
greater the demand to get into a college
compared to supply, the higher the GPA and
standardized test scores required to get into
that college, or the higher the “price” a student must pay in terms of grades.
E X A M P L E : Suppose a university charges
tuition of $12,000 a year and requires a 3.0
GPA and an SAT score of 1900 or higher for
admission. Currently, 7,000 students apply
for admission each year and 2,000 are admitted. Time passes and the number of applicants rises to 10,000. We know that a rise in
the number of applicants is just another way
of saying that demand to attend the university increased.
Our study of supply and demand teaches
us that if demand rises, tuition will rise too.
In other words, tuition might rise to $16,000
a year. Suppose the university chooses not to
raise tuition; it maintains tuition at $12,000
a year. Will the standards of admission rise
instead? The answer is yes—the university
might start requiring a 3.3 GPA and an SAT
score of 2000 or higher. Necessary Conditions for a
High Income: High Demand,
As consumers, we are used to paying
prices. We pay a price to buy a computer, a
soda, or a shirt. We sometimes receive prices,
too. As a seller of a good, you receive the
price that the buyer pays.
Many people do not sell goods; instead,
they sell their labor services. The person who
works at a fast-food restaurant after school
or an attorney at a law firm is selling labor
services. The “price” employees receive for
what they sell is usually called a wage. A
wage, over time, can be referred to as a salary
or income. A person who earns a wage of $10
an hour receives a monthly income of $1,600
if he or she works 160 hours a month. 06 (128-153) EMC Chap 06 11/21/05 3:14 PM Page 147 A wage is determined by supply and
demand, just as the p...
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- Winter '14