Old Lady

ƒ(x)

A poor old lady, with little money and plenty of time, sat quietly one day trying to devise a plan for making a little change. She finally came up with a very clever idea. Taking an old necklace, which she knew was worth only $4, she went to a pawnshop and pawned it for $3. Then, on a street corner, she started a friendly acquaintance with a young man, finally persuading him to buy the pawnticket for only $2. Now, she had $5 altogether and thus had made $1 profit. The pawnbroker wasn’t out any money since he paid only $3 for a $4 item, and the young man paid only $2 to get the $4 necklace. Who lost?

micromass

The young man, since to actually get the necklace back from the pawn shop, he needs to pay 3$. Thus he lost 5$ in total and gained a necklace of 4$, so he lost 1$...

ƒ(x)

I thought it was the old lady who lost.

micromass

But the old lady started out with 4$ and ended with 5$... Or am I missing something?

ƒ(x)

She effectively sold a $4 item twice. First for $3 and then for $2.

Evo

You asked who lost. The young man did.

ƒ(x)

Wouldn't what I said mean that the old lady lost?

micromass

The way I see it is:

Old lady started with $4 --> ended with $5
Pawn owner started with 0$ --> -3$ + necklace --> 0$ (if young man picks up necklace)
Young man started with 0$ --> -2$ + pawn ticket --> -5$ + necklace (if young man picks up necklace)

Thus the old lady started with $4 and ended with $5, the young man started with 0$ and ended with -1$. So he lost.

The old lady did sell the necklace two times, but I don't see why that means that she lost...

ƒ(x)

Wouldn't what I said mean that the old lady lost?

Evo

No.

You seem to be forgetting that in order to get the necklace from the pawnshop, the young man also has to pay the pawn shop. He cannot just hand in the ticket, the ticket just allows the man to buy the necklace back at a pre-arranged cost.

I think the problem here is that you don't understand how pawn shops work, that's ok.

turbo

The young man not only lost $1 in real value, but if he redeems his pawn ticket, he has to pay the pawn shop their percentage in addition to the $3. The old lady came out a dollar ahead. The pawn shop owner came out his percentage ahead less overhead, and the young man ends up paying for both their gains.

ƒ(x)

My mistake, I didn't understand how pawn tickets worth. The old lady nets $1 and the young man nets -$1

turbo

No. The young man paid $2 for the ticket, and has to pay $3 plus a fee to redeem the necklace. He is out $1 PLUS the pawn shop commission. Not a good deal for him, but he is the only player that is on the losing end.

ƒ(x)

There's a pawn shop commission???

gb7nash

If you pawn an item, it's essentially a loan. You give them item. Pawn shop gives you cash. You pay off loan with a little bit of interest by a certain date and pick up your item.

You can also sell an item to a pawn shop. Pawn shops will buy your item at a lower rate and sell at retail price (or close to it) since they're in it to make a profit (and you're in it to get that old antique off your hands).

turbo

Yes. Pawn shops do not loan you money on an object and then give it back when you pay the loan. They charge a commission which can be based on a fairly aggressive interest-table. You can't take a gun to a pawn shop and hock it for $50 and then recover it for $50. Pawn shops don't work that way.

ƒ(x)

Never used one.