Raise or Lower Tuition at Nobody State University Essay Sample
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Raise or Lower Tuition at Nobody State University Essay Sample
In an effort to determine how an increase in the tuition fee of Nobody State University (NSU) will affect the total revenue of NSU we will need to look at the price elasticity of demand to see whether an increase in the tuition fee would cause a total revenue increase or decrease. This is dependent on whether the demand is elasticity demand or inelastic demand. To better understand how this works allow me to explain the term elasticity. According to Amacher & Pate, Microeconomics Principles and Policies, “Elasticity measures the way one variable responds to changes in other variables” (Amacher & Pate, 2013, section 4.2).
The formula “Elasticity = Percent change in the dependent variable/Percent change in the independent variable” and it is used to measure elasticity “of how the dependent variable responds to changes in any one of the independent variables” (Amacher & Pate, 2013, section 4.2). So if you have a quantity of goods that you demand (dependent variable) then the independent variables would be; price, income, tastes, and the price of complements and substitutes. Therefore, changes in price that have a small effect on the quantity of goods demanded are considered inelastic and changes in price that have a large effect on the quantity of goods demanded is elastic. When looking at the price elasticity of demand we are able to determine how increase in tuition fee would affect the total revenue of NSU. An example of whether the increase in tuition fee would cause total revenue to increase, decrease or remain the same depends on the fact whether the demand is elastic, inelastic or unitary. Price Elasticity and Inelastic Demand Defined
Amacher & Pate, 2013, explain elastic demand as, “When the coefficient is greater than 1, the quantity demanded changes relatively more than the price and the demand is thus described as elastic” and inelastic demand is explained as, “When the coefficient is less than 1, demand is said to be inelastic; the percent change in quantity demanded is less than the percent change in price”, (Amacher & Pate, 2013, section 4.3). Unitary (Unit elastic demand) is when the coefficient of price elasticity of demand is equal to one, (Amacher & Pate, 2013, section 4.3). Price Elasticity and Inelasticity of Demand and Tuition Increase
As we look at the measures of which the degree of responsiveness in quantity demanded of a good due to changes in its price we can see how the price elasticity of demand will affect the total revenue if the tuition price were to increase. When looking at the price elasticity of demand the absolute value of elasticity is greater than one; therefore, the proportionate decline in quantity demanded of a good (as in the result of increase in the tuition price) will be larger than the proportionate increase in its tuition price, causing the total revenue to fall due to the increase in the tuition price.
On the other hand, if we look at how the price inelastic of demand will affect the total revenue we will find that the absolute value of elasticity is less than one, therefore, the proportionate decline in quantity demanded of a good, due to the increase of the tuition price, will be less than proportionate increase in the price, causing the total revenue to increase due to the increase in the tuition price. So when using the elasticity of demand the increase if tuition price would affect the demand by causing a decrease of students, therefore, creating a loss in the total revenue of NSU. When using the inelastic of demand the increase in price would not affect the demand (or the number of students), which will give an increase in the total revenue of NSU.
Therefore, the supply and demand of a good or service is unaffected as the price of the good (tuition price) or service changes. Unitary demand is when the absolute value of elasticity is equal to one. In the case of a unitary demand if the price of tuition does not change then there is no change in the total revenue. Conditions Under Which Revenue Will Rise, Fall, or Remain the Same The conditions which will cause the total revenue of NSU to rise, fall, or remain the same as mentioned above are elasticity demand. When the absolute value of price elasticity demand is greater than one the increase in the tuition price will cause the total revenue to fall, while price inelastic demand is less than one the increase in the tuition price will cause the total revenue to increase, and unitary demand will show as an increase in tuition price with no changes in the total revenue of NSU. Process of Revenue at NSU
There are many sources of revenue for NSU. When a student desires to attend a college they have to find a way to pay for their expenses. In 2013, Community College Week, wrote an article about this very thing. Jon Marcus reported that the, “Private, for-profit colleges have joined the march of institutions that appear to be lowering their tuition as enrollment flattens out and families become increasingly price conscientious” (Marcus, 2013, para. 1). These for-profit colleges are still looking to increase their revenues just like any other college. To do this they are attempting to undercut their competitors or they are trying to build their market share.
In another article, Making College Affordable, Bell & Michelau, 2001, talk about the cost of college education and how it can be affordable to students in the United States. Some parents will invest in college savings accounts or prepaid tuition programs. In this article it talks about how the price of college tuition has increased by 50 percent over a time frame of just a decade.
Those students who are not fortunate enough to receive a scholarship will take on loans that will take them anywhere from five to twenty years to pay back. In this article Bell & Michelau state, “Government assistance, whether state or federal, helps students who can’t afford college and would otherwise not go” (Bell & Michelau, 2011, para 19). There are many financial aid options available for students who desire to get a higher education. For instance there are Federal Pell grants, financial aid, and other federal student aid and state student assistance that are based on the family’s income.
If NSU were to keep their tuition prices the same and open up doors to supply students with grants and loans they would have an increase in students while having an increase in total revenue. If they were to lower their tuition prices to allow those who are not able to get financial aid then they would still be able to gain more students and help some of those who are not able to pay up front for their schooling, and still gain revenue. On the other hand if they were to raise their tuition prices this of course would cause a decrease in the total revenue, because they have fewer students attending their college. Expanding revenue at NSU
If the true price of elasticity demand is (-1.2), in the absolute term this is greater than one and the demand will be elastic in respect to the tuition price. Meaning; that the proportionate decline in enrolment, due to the increase in the tuition price would cause a decrease in the total revenue at NSU. This is the same as saying that with an increase of 1% in the tuition price the enrolment will decline by 1.2% which will cause a decline in total revenue by 0.20%.
With this known fact, I would recommend NSU not to increase their tuition price. It would be better for the university to decrease the price instead. With a decrease in the tuition price there will be a larger number of students enrolling in the university which will increase the total revenue because the demand is inelastic which will allow for the proportionate increase in enrolment to be greater than the proportionate price decrease, which will cause the total revenue to increase. Problem at NSU Resolved
The president of NSU should highly consider the options of decreasing the tuition price for the university. However by using the form of elasticity demand it is most likely that the tuition price will be raised. In order for the university to thrive and have an increase in total revenue they could offer a variety of courses that will catch the eyes of the students. They could also use grants and loans to increase the number of students an affordable experience. In addition to that if they were to have a top of the line facility and job oriented courses which will provide good job opportunities with lots of research and development and the faculty to help students excel then they could still do well for the total revenue overall. With all of these implementations the university could still have an increase in their total revenue because more students would want to go to NSU. Conclusion
In conclusion, we have seen how an increase in the tuition price of Nobody State University will affect the total revenue of NSU. We can see how price elasticity of demand and price inelastic of demand affects the total revenue of the university. Options have been offered in an effort to gain an increase to the total revenue of the university, by allowing for a higher standard of teaching, facility, mentoring, and funds to help the students to excel in their education.
Amacher, R., Pate, J., (2012). Principles of Macroeconomics. San Diego, California:Bridgepoint Education, Inc Bell, J., & Michelau, D. K. (2001). MAKING COLLEGE AFFORDABLE. State Legislatures, 27(9), 19. MARCUS, J. (2013). Some Colleges Reduce Tuition as Consumers Seek Lower Costs. Community College Week, 26(3), 9.