AssignmentOn“Raising or Lowering Tuition for Nobody State University” |
Tuition Payment in Nobody State University
Nobody State University charges their students with tuition fees in order to accommodate them with faculty and stuff keeping, laboratory system, computer as well as technical facilities, library, research and other necessary maintenance. Like worldwide educational institutions, the basic aim is to offer students with a healthy and comfortable education environment.
Assessing the Raise in Tuition in NSU
Due to failure in generating necessary revenue, NSU has raised its tuition fees from students. Let’s consider the students as “Consumers”. Although they are ...view middle of the document...
For example, the elasticity of demand for soft drinks “as a whole” will be usually lower than Pepsi or Coca-Cola alone. Consumers are also exhibit less price sensitivity when it comes to goods they “have to” or habitually consumes. An established and committed buying pattern tend to lessen elasticity.
When consumers are loyal and committed to a specific brand, there is also reduced elasticity behavior observed in them. If they are not particularly fond of the brand, the increase in price will cause them to switch to another brand and reducing its demand (assuming there is closer and cheaper available substitutes). (Amacher, R. & Pate, J., 2013, Microeconomics Principles & Policies)
From the following discussion, what I can conclude is NSU can not “necessarily” raise revenue and compensate its shortage in funds by increasing its tuition fees. For this, we need to look at the Elasticity of Demand concept more closely to determine.
Different Conditions of Revenue
Tuition elasticity measures the change, whether an increase or decrease in enrollment of students. So it is the percentage change in enrollment divided by the percentage change in the cost of going to university. Measuring tuition elasticity is extremely important for universities and other educational institutions that rely on students’ tuition basically to cover a huge portion of their expenditure.
Tuition Elasticity = % Change in Enrollment / % Change in Cost of Attending University
(i) Rise in Revenue: NSU can increase its revenue by rising its tuition fee on students if the tuition elasticity is less than 1 or Inelastic. Or more simply we can say that if the enrollment is quite steady (that is, stay quite the same natured without any significant change), the university can gain revenue by enhancing its tuition rates. It will indicate that students have no close substitute or alternative choice, they are pretty much committed to where they study or they are habituated being here and face no difficulty from family in providing the raise in their fees. In real world, the tuition fees are rising everyday especially in the developed countries. (Microeconomics (5th Edition) by Robert S. Pindyck, Daniel L. Rubinfeld, Hardcover: 699 pages, Publisher: Prentice Hall)
(ii) Fall in Revenue: NSU will face a fall in revenue if the tuition elasticity is greater than 1 or Elastic which will indicate that students are, in fact, price sensitive. In such case, they may switch to other cheaper universities that are convenient to them. As a result, both the number of enrollments and most importantly revenue of university, will go down. The university will be in a crisis.
(iii) No Change in Revenue: There will be no change in revenue for the university if the tuition elasticity is deemed to be 1. It is said to be unitary elastic then because a small change in tuition fees will not affect revenues actually.
Revenue Process in NSU
With the increase in revenue...