Samuelson And Marks Discussion Question P 241 Over The Last

11samuelson And Marks Discussion Question P 241over The Last 30 Ye

11 Samuelson and Marks, Discussion Question, p. 241. Over the last 30 year in the US, the real price of a college education (i.e. after adjusting for inflation) has increased by almost 70 percent. Over the same period, an increasing number of high school graduates have sought a college education. (Nationwide college enrollments almost doubled over this period.) While faculty salaries have barely kept pace with inflation, administrative staffing (and expenditures) and capital costs have increased significantly. In addition, government support to universities (particularly research funding) has been cut.

a. College enrollments increased at the same time that average tuition rose dramatically. Does this contradict the law of downward-sloping demand? Explain briefly.

b. Use supply and demand curves (or shifts therein) to explain the dramatic rise in the price of a college education.

Paper For Above instruction

The observed trend of increasing college enrollments alongside rising tuition fees appears, at first glance, to contradict the fundamental economic principle of downward-sloping demand. According to the law of demand, as the price of a good or service increases, the quantity demanded should decrease, all else being equal. However, in this context, both the price and quantity demanded (enrollments) have risen simultaneously over the past 30 years, indicating that other factors are influencing this market dynamic.

One way to understand this paradox is by examining the demand for higher education as a special case of a derived demand—demand stemming from the perceived benefits of education. Over recent decades, the rate of return on college education has increased in many sectors of the economy, particularly with the rise of technology and information industries that value higher levels of human capital. Consequently, despite higher costs, more students are willing to enroll because they perceive the benefits—such as better job prospects and higher lifetime earnings—to outweigh the costs, resulting in a rightward shift of the demand curve.

Additionally, the increase in enrollments can partly be explained by the increase in the number of high school graduates who view college as a necessary step for socioeconomic mobility. This has shifted the demand for college education outward regardless of the tuition increases, which may also reflect a change in societal norms and expectations surrounding higher education.

From the supply side, the dramatic rise in tuition can be attributed to several factors. First, there has been a significant increase in administrative costs and expenditures on capital projects, which have elevated the total cost structure for universities. While faculty salaries have not kept pace with the inflation-adjusted costs, administrative and capital expenses have surged, contributing to higher tuition fees. Second, government funding cuts—especially in research grants—have shifted more of the financial burden onto students and their families, increasing the price they face.

Supply-side shifts include a relative constriction in the availability of seats or programs that might have kept prices lower historically. As universities seek to cover rising operational costs, they pass these costs onto students via increased tuition. Moreover, the expansion of amenities and infrastructure aimed at attracting students has also increased capital costs, further pushing up tuition fees.

In sum, the simultaneous increase in demand and supply-side cost pressures has led to higher prices. The demand curve shifts outward due to increased perceived benefits and societal shifts, while supply does not keep pace, partly due to increased costs and decreased government support. These combined shifts explain the rise in the price of college education despite rising enrollments, aligning with economic principles when considering the broader factors affecting demand and supply in higher education markets.

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