Elasticity

Posted: October 17th, 2013

Micro Case Study 2: Elasticity: Higher Education

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Micro Case Study 2: Elasticity: Higher Education

Price elasticity of demand within higher education would not be elastic considering the demand continuously rises while the price of education is going up, as well. However, I would expect the price elasticity of demand to be higher at an individual institution than at the aggregate level. Considering that higher education institutions will be competing for students in the market, changing the price in one institution does not mean a change in the other institution. Therefore, a student could always consider admission in the institution asking a cheaper price. Therefore, if an institution increased its price, many students could respond by seeking enrollment in another institution. However, if the price changed at the aggregate level, students will have no choice considering all the institutions have increased their prices (Berger & Kostal, 2002). Thus, due to competition, price elasticity of demand would be higher at the level of an individual school than at the aggregate level.

Although empirical studies have shown that price elasticity of demand is not zero, decision makers at the higher education believe it is zero. The reason could be the increasing demand for higher education that is seeing many people enroll in colleges. This is experienced nationally as the number of youth seeking higher education increases. In making the decision concerning my college, the price to pay was among the top considerations. Some of the factors concerning price that I had to consider was the financial aid that I would receive in every college since they are different with different colleges. Although college education is high, many of them offer financial aids. Therefore, in making my decision about the college, I had to consider financial aids that I would get as well as other related costs that include commuting, housing and course offering amongst other costs. The total cost was crucial in deciding on my college. A change in few thousand dollars could not have mattered since education is necessary and has no close substitute at the aggregate level. However, at choosing a college, this does matter if there is a tremendous variation (Berger & Kostal, 2002).

I would expect that price elasticity of demand would be higher for non-financial aid students than for financial aid students. Financial aid students receive financial support such as educational loans that are subsidized from federal or state governments and price discounts. With such benefits, it means one would be in a position to purchase their education easily without difficulties (Berger & Kostal, 2002). Therefore, a change in price of education will not affect the ability of the financial aid students largely as it would affect the non-financial aid students. Thus, price elasticity of demand would be higher in non-financial aid students since the ability to pay is constrained compared to financial aid students. However, at an individual level, this will be dependent on the ability of the individual to pay for their education without financial aid since even with financial aid; one has to contribute a significant share to their education fees.

At Baker College, student income means the ability to afford higher education prices at the college. When income increases, it means the students have an added ability to pay up their higher education (Berger & Kostal, 2002). However, this is affected by financial aids that are issued on the ability of the student to pay up their fees. In such a manner, when the ability to pay for education increases through an increase in income, the chances of getting a financial aid become slimmer, or the financial aid is lesser. However, income increase will mean that a student is at a better chance to afford higher education. This will positively affect demand or level of enrollment in Baker College.

(Geiger & Heller, 2011) Retrieved from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDYQFjAA&url=http%3A%2F%2Fwww.ed.psu.edu%2Feduc%2Fcshe%2Fworking-papers%2FWP%25236&ei=iDgKUfqgD8a0hAew-YDACg&usg=AFQjCNHfurDt7SdSvjm78rKyf1EQbahwuA&sig2=wi_lgsbjaNiurTCIcendQA&bvm=bv.41642243,d.ZG4

This indicates the ability of families to pay for higher education from their income. It shows that higher education prices have continued to hike more than the family income meaning that ability to pay is lower. Despite the inability to pay, demand for higher education continues to rise. This can be explained by the fact that there is no close substitution to education (Geiger & Heller 2011).

References

Berger, M.C. & Kostal, T. (2002). Financial resources, regulation, and enrollment in US public higher education. Economics of Education Review, 21 (2): 101–110.

Geiger, R.L. & Heller, D.E. (2011). Financial trends in higher education: United States. University of Pennsylvania State University.