Full Time Student Earned 30,000 In Previous Job

A Full Time Student Used To Earn 30000 In His Previous Job But Now Att

A full-time student used to earn 30,000 in his previous job but now attends a four-year college. He paid a total of 15,000 in tuition and fees per year. He also took a student loan of 10,000 at an annual interest rate of 3%, and withdrew 14,000 in savings that earned 5% interest. His total cost of attending school in a year is about a: 43000, b: 44000, c: 45000, or d: 46000.

X and Y are substitute and normal goods. Other things being equal, the effect of an increase in the price of X would cause which of the following? a: A rightward shift in the demand curve for Y, b: a downward movement along the demand curve for Y, c: an upward movement along the demand curve for Y, or d: a leftward shift in the demand curve for Y.

Paper For Above instruction

The scenario involving a full-time student’s education expenses and the economic analysis of substitute and normal goods presents two interconnected questions rooted in microeconomic theory. First, estimating the total annual cost of attending college involves accounting for direct costs and opportunity costs, including tuition fees, interest on loans, and foregone income. Second, understanding how a change in the price of a substitute good impacts the demand for a normal good requires an exploration of demand elasticities and consumer behavior within the framework of the substitute and normal goods' relationship.

Estimating the Total Cost of Attending School

The total cost of attending school annually is a combination of explicit costs—such as tuition fees—and implicit costs, including interest on borrowed funds, foregone income, and the opportunity cost of using personal savings. In this scenario, the explicit costs are straightforward: tuition and fees amount to 15,000. Loan interest liability is calculated based on the principal of 10,000 at an annual rate of 3%, resulting in 300 interest per year. Additionally, the student withdrew 14,000 from savings earning 5% interest, which is an opportunity cost of 700 in foregone interest income (0.05 × 14,000).

Since the student used savings that could have earned interest, and took a loan, the total opportunity costs include both the interest paid on the loan and the interest foregone on savings. Therefore, the total cost of attending school for a year can be expressed as the sum of tuition and fees, interest on the loan, and the interest that could have been earned on savings, minus the interest actually earned on the withdrawn savings.

Calculating, the explicit and implicit costs are:

- Tuition and fees: 15,000

- Loan interest: 300

- Foregone interest on savings (lost interest): 700

Adding these up yields:

15,000 + 300 + 700 = 16,000

However, this only accounts for additional costs. To estimate the total annual economic cost, we should also consider the opportunity cost of lost earnings, which was 30,000 when the student was employed. Since the student is now attending college, the foregone income of 30,000 from previous employment is a critical economic component, representing the most significant opportunity cost.

Adding this, the total estimated annual cost becomes:

30,000 (foregone income) + 15,000 (tuition) + 300 (loan interest) + 700 (lost interest income) = 46,000

Hence, the total annual cost of attending college is approximately 46,000, which corresponds to option d: 46000.

Impact of a Price Increase in Substitute Goods

The second question examines consumer demand dynamics for substitute (X) and normal (Y) goods. In economic theory, a substitute good is one that consumers are willing to switch to if the price of its alternative rises. When the price of substitute X increases, consumers tend to buy more of X and less of other alternatives, which can influence the demand for Y, a normal good.

Other things being equal, an increase in the price of a substitute good X makes X less attractive, prompting consumers to buy less of X and potentially more of its substitutes—possibly including Y. However, whether the demand for Y increases depends on whether Y is a close substitute for X or a complementary or unrelated good.

If Y is a normal good, and X is a substitute, then an increase in the price of X would typically lead to increased demand for Y as consumers seek alternatives to X. This is a typical substitution effect, resulting in a rightward shift in the demand curve for Y, reflecting higher demand at each price point.

Therefore, the correct answer to the impact of increasing the price of X on the demand for Y is:

a: A rightward shift in the demand curve for Y.

Conclusion

In conclusion, the student's yearly cost for attending college is approximately 46,000, considering tuition, interest payments, and opportunity costs associated with foregone earnings and savings interest. Furthermore, an increase in the price of a substitute good X causes a rightward shift in the demand for a normal good Y, illustrating typical substitution effects in consumer demand.

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