Cross Elasticities of Collegiate Demand

Perhaps no other area of interest to economists has received so much attention over the recent quinquennium as has the economics of higher education.1 Indeed, it is not too much to say that there has been an avalanche of studies in the field and one which gives no sign of abate? ment.2 Yet these studies, when not merely descriptive, have been largely concerned with education as a form of investment leading to cost-benefit analyses, or with cost pressures on the private sector leading to fears for the future of that category.3 Analytically speaking, major attention has been given to the discounting of assumed future returns and to the income elasticity of demand function. These writings, therefore, are characterized by what would be considered a startling void in other industry analyses, i.e., an almost total absence of concern with price elasticity4 of demand and its companion, cross elasticity of demand. These technical stalwarts are of course at the heart of partial equilibrium analysis, the latter's absence being explained by that of the former.5 What accounting can be made for the above noted void? In this writer's view, three factors constitute the rationale : first, the public institutions of higher education currently account for some 69 per cent6 of all enrollments nationally and since these are heavily subsidized there remains little if any analytical scope for price and/or cross elasticities of demand. In passing, we should note that this statement would be far from true were governments to subsidize students rather than institutions. This of course is Milton Friedman's policy recommendation. In his view, all (public and private) institutions of higher learning should be subsidy free and thus be forced to compete in terms of price and quality for custom.7 Second, the private colleges and universities have presumably never regarded themselves as profit-oriented enterprises and thus have pursued a policy of price increase seemingly only in response to cost push. Third, for those many schools operating within reasonably defined and competitive, local (usually state-wide) markets, especially where tuition represents a very substantial proportion of total revenue, pricing policy resolves itself into the simple procedure of following the leader. The plausible reality, in brief, is one in which leader and follower(s), reacting to some status-order however sensed, will raise price in re 222

Demand curve · Economics · Income elasticity of demand · Market economy · Microeconomics · Price elasticity of demand · Public economics · Subsidy · Innovations in Educational Methods

• A Partial Viability Index For Specific Institutions in Higher Education

  William F Tauchar•Review of Social Economy•1974

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• Student Price Response in Higher Education

  Larry L Leslie, Paul T Brinkman•The Journal of Higher Education•1987

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