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Monday, May 06, 2002


Steven Den Beste - whose blog is a daily requirement, as everybody who reads it knows - has a posting about college tuition rising as family income falls. Steven thinks this is price gouging - I think it's classic market economics. (I'm going to respond here - where it won't be read - because I frankly don't want to jump through the hoops to register to comment at his site.)

I think he's wrong about the demand curve. Higher education is a countercyclical consumer good - when times are good (and incomes are rising), people buy less of it; when times are bad, they buy more. Since it's difficult to adjust supply quickly to adjust to changes in demand - there's not a whole lot of unused capacity, professors have contracts and tenure - you have to adjust prices. When demand goes up, prices rise; and they both fall together.

This is easy to see at Georgia State University, where I work - our demand tracks economic conditions pretty closely and rapidly. We're a non-residential school, where the majority of students work at least part-time - average age is 26 - split between a more traditional daytime 19-to-22-year-old and an older evening student body. Number of students stays fairly constant from term to term, but the total number of classes taken varies widely. When times are good, people work a few more hours per week and take one fewer class. When times are bad and the oppportunity costs of being in school fall, classes get added and the course load increases. Marginal expenses rise - and so does the tuition.

Changes in overall demand may be more visible here than at a traditional four-year school, but I'm sure the trends are the same. I don't want to defend the economics of higher education - inflation is rising faster than any other sector of the economy but health care, and quality has been on a downward glidepath for years - but price fixing to maintain a constant revenue stream isn't the problem.

Mark Byron has a response to this - but I think he underestimates how very difficult - not just unpalatable - it is to cut expenses in terms of the underlying fixed costs. I'm surprised none of the Econobloggers has addressed the topic yet. Perhaps there's a detailed response in the works.

posted by Kelly | 10:22 AM link