Steve is a very smart student …show more content…
According to Mankiw’s 4th principle, people respond to incentives. In this case, the incentive for Amar was that if he did not get a graphing calculator, he had already been told by his teacher that he would fail the test, which gave buying a graphing calculator a higher priority. The reason that Steve is so sure that the rest of his graphing calculators will sell is because of the scarcity of the graphing calculators. Since there is only a limited amount of graphing calculators, it will become more in demand because there is such a small supply. Along with that, the trade-off for Amar was that he was giving up the benefit of having 3,500 birr by exchanging it for a graphing calculator, which was more favorable than the money. For Steve, the opportunity cost was that he gave up the graphing calculator for money, when he could have used the graphing calculator for himself. The concepts of Universal Convertibility and Universal Trust both apply to this scenario due to the fact that Universal Convertibility is that money can be changed and transformed into anything a person wants. As applied to this scenario, Universal Convertibility is how the money is changed and transformed to get a graphing …show more content…
The school, as can be seen above, would make an immediate profit, but then would not be gaining any profit even as more graphing calculators are sold because the school would not have any graphing calculators being sold. Steve makes more profit than the school at this point:
0x = 3500x –