Running header: ELASTICITY OF DEMAND 1
AnEvaluation of a Recommendation to Increase Tuition and ReduceFinancial Aid to Students
Theelasticity of demand is a measure of the responsiveness of thedemandfor a product or service to price change. Demand is the desire for agood or service and the willingness and ability to pay a price whichis the value of the good or service. Managers apply these concepts tomake decisions aimed at increasing the demand for their products orservices (Gajjala, S., 2012).
Aresearch by J.D Glater and A. Finder of the New York times foundthat the Ursinus College in Pennsylvania received more applicationsafter it raised its tuition by 17.6%. Other colleges also experienceda similar rise in applications after increasing tuition fees(Brickley, J. A., Smith, C. W., & Zimmerman, J. L., 2016). Thispaper will discuss the recommendations of the admissions director ofan arts college to increase tuition fees in order to attract higherapplications.
IncreasingTuition and Reducing Financial Aid to Students to Increase the Demandfor College Education
Thefirst law of demand states that with everything remaining constant,the increase in the price of a good or a service leads to a reductionin its demand. The lower the price, the more affordable it is andthus buyers have the ability to pay for it.This creates a downwarddemand curve (Brickley, J. A., Smith, C. W., & Zimmerman, J. L.,2016).
However,this is not always the case. In the present case, admissions directorSusan Hansen believes that increasing tuition and reducing financialaid will lead to an increase in demand and therefore moreapplications and consequently more money for the college.She basesher recommendations on data from other schools (Glator, J. D., &Finder, A., 2006). A higher tuition enables schools to have betterlearning infrastructure and a more conducive learning environment.Students wanta quality education so as to be successful in theirlife. They are willing to pay high amounts of tuition fees to securetheirfuture. This is represented by an upward demand curve as shownbelow
Lesstuition is more likely to make people doubt the quality of educationservicesin an institution. Increasing financial aid is more likely toattract students who are less fortunate and not able to afford hightuition who are likely to be of lower quality considering the qualityof their current education.
Asmaller amount financial aid, coupled with higher tuition are morelikely to make a college be perceived as of high quality henceattract more students. The reason behind this is the fact that highertuition fee is more likely to ensure high-class learning materialslike books, and state of art infrastructures like libraries,laboratories, and lecture rooms. I would uphold and support SusanHansen’s suggestion because it is valid and practical in theeducation sector today. Moreover, the number of students coming fromAfrica, Asia, Hispanic countries and other parts of the world to theUSA is increasing and they don’t mind payinga higher tuition so toget a quality education. More tuition fees and higher enrollment ofstudents will solve the college’s financial problems.
Brickley,J. A., Smith, C. W., & Zimmerman, J. L. (2016). Managerialeconomics and organizational architecture (6thed.). Boston, MA: McGraw-Hill/Irwin.
Gajjala,S. (2012).Managerialeconomics and financial analysis.New Delhi: Universities Press.
Glator,J. D., & Finder, A. (2006, December 11). In Tuition Game,Popularity Rises With Price. Retrieved January 13, 2017, fromhttp://www.nytimes.com/2006/12/12/education/12tuition.html