Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, September 06, 2005

Students' Reactions to High Textbook Prices

Economists know that people respond to incentives.

Economists know that demand curves are downward-sloping.

But how can the quantity demanded possibly respond to higher prices if students need the textbooks for their courses? The professor chooses the book, and the students have to buy it, right?

As all economists also know, "It all depends."

It turns out that not all students buy the assigned textbooks. Some students share a text. Some students hope to count on using a reserve copy in the library. Sometimes, I have been told, students will even attempt to pass a course by (maybe, sometimes) going to lectures, getting class notes from fellow students, and praying a lot. And there is evidence that these alternatives become more prevalent as textbook prices rise (in real terms).

But there is even more to how students react to textbook prices. [thanks to Skip Sauer, chief blogger at The Sports Economist, for the link]. They also exhibit considerable savvy about the market for durable goods.
... students skip buying a book that was published a few years ago far more often than they skip buying a new edition, and there seems to be only one explanation for the difference.

The students understand that the book with an older publication date is effectively more expensive than a more recent one, because the older one is more likely to get revised soon and lose its resale value. When an $80 textbook can be resold for $40, on the other hand, it effectively costs $40.

In the semester before economics textbooks are revised, sales plummet, typically by 50 percent, according to the researchers, Judith Chevalier, a Yale economist, and Austan Goolsbee, a University of Chicago economist.

... During the early part of a book's life, sales drop steadily, about 15 percent each semester, as the pool of used books on the market grows. But once it gets old enough to be in danger of revision, many more students suddenly say no thanks.

...But there could be a rational explanation for that, too. Parents sometimes pick up the bill for the new textbooks that a student buys at the start of a semester. The cash that comes from reselling the book often has a way of not making it back to mom and dad.
Several years ago, a student told me that, for many of her courses, she was able to find used copies of textbooks that had never been opened! I couldn't believe it. Even in my worst days as an undergrad (and there were many), I opened the books, pretended to read them, and made marks, which, upon review look like random pen scratchings.

Buying a book and not opening it somehow seems beyond the rational scope of "the economics of durable goods" unless these students are blatantly conning their parents or other funding agencies.
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