Question

Over the last 30 years in the United States, the realprice
of a college education (i.e., after adjusting for inflation) has increased by almost
70 percent. Over the same period, an increasing number of high school grad-
uates have sought a college education. (Nationwide college enrollments almost
doubled over this period.) While faculty salaries have barely kept pace with
inflation, administrative staffing (and expenditures) and capital costs have
increased significantly. In addition, government support to universities (partic-
ularly research funding) has been cut.
a. College enrollments increased at the same time that average tuition rose
dramatically. Does this contradict the law of downward-sloping demand?
Explain briefly.
b. Use supply and demand curves (or shifts therein) to explain the dramatic
rise in the price of a college education.

Answer 1

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