Sunday, June 15, 2008

Free Economic Questions and An example of Price Discrimination

On this blog I invite questions from the readers on Economics. I don't do mathematical questions nor am I interested in giving answers to coursework. I publish any answer online in the public domain so that students know they can't try to pass it off as their own work. I hope these answers will be a learning device. There is nothing here I wouldn't offer to my own students studying economics.

However, before the exam season I became inundated with questions - I was getting up to 10 a day and I couldn't keep up. It was a simple case of demand being greater than supply, which is not unexpected given the price was zero.

Diagram of Supply and Demand

Price of 0 leads to excess demand of Qy - Qx (shortage)

Therefore, I had to change my pricing strategy. Rather than answering questions for free I would charge £1. In theory this would return the market to equilibrium. I would get less questions and the people who really valued the answers would pay. It was also a case of price discrimination charging a higher price in a time of inelastic demand (the exam season).

In practice not may wanted to pay £1. I think this was largely because of the difficulty in transferring money - maybe students didn't have a paypal account e.t.c. I think more students would have paid £1 if it was easier to transfer money

However, now the exam season is over I am going to revert to free questions, at least temporarily.

To be honest I prefer having questions free. When people pay there is an expectation to give complete answers. I'd rather be picky about the questions I answer and in some cases I feel I need to give just hints rather than full answers.

If you have any economic questions feel free to ask. But, please forgive me if I don't have time to answer!

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