Question

A well-known women's college whose tuition lagged below similar schools found recruiting difficult and enrollment falling. A substantial tuition increase was implemented, and dormitories were soon full again. This can be explained by(A) the law of demand. (B) the fact that education at the school was an inferior good. (C) the fact that people sometimes base perceptions of quality on price (snob effect). (D) demand was elastic.

Answer 1

The correct answer is C) the fact that people sometimes base perceptions of quality on price (snob effect).

A well-known women's college whose tuition lagged below similar schools found recruiting difficult and enrollment falling. A substantial tuition increase was implemented, and dormitories were soon full again. This can be explained by the fact that people sometimes base perceptions of quality on price (snob effect).

In microeconomics, in the snob effect, the demand for some goods that are considered expensive are more demanded. If people that have the money to spend of something assumes that the price of the product is cheap, these people think that the product has low quality. But if the same product is expensive, they consider that the product has quality and is well worth it. That is why, in the case of the college, when the price of tuition increased, people started to trust again in the school and the dorms were full.