It's a nice illustration of how changes in opportunity costs lead to changes in behavior. The opportunity cost associated with action A is the value associated with the thing you can't do because you're doing A.
If you're going to school, you can't work (at least not as much). So the total cost of going to school is tuition plus opportunity cost --- that is, tuition plus the money you don't make because you're going to school instead. And people compare this total cost to the benefit of education when making choices. When the economy slows, the opportunity cost of education falls --- and classes fill up.
But the whole issue of state funding for public universities raises a bigger question --- what's the rationale for governmental involvement in education? To remind you how economists view government involvement in markets, the case for governmental involvement usually rests on market failure. If markets fail to allocate resources efficiently, then there may be a role for collective action via government to try to improve efficiency.
Is there a market failure here that needs to be addressed? (I can think of two...)
Posts
1 comment:
Government involvement in education is a funny thing. I have read "Free to Choose" too recently to think it is a good thing. But,there are lots of strange things about the market for higher education.
The price(tuition) seems to be completely unrelated to costs, marginal or otherwise. What does the price communicate? Why doesn't it move with demand?
The price also seems unrelated to the product. What exactly is the product Universities are selling? Education? Research? Monuments? Diplomas? Merchandise? Entertainment? It is unclear. If it is education how come the price of an engineering degree is roughly the same as a theater arts degree?
Government is willing to fund education consumers with grants and loans regardless of the degree pursued. They also fund the institutions directly. Are they interested in great students or great institutions? The world benefits from great institutions, by sending their students here, but the world does not pay taxes to support them. It is all very strange. In the end our University system is the best in the World, something must be working. I hope it is worth the cost.
Post a Comment