The observation of the university official is incomplete. While she might be correct in her assertion that demand for admission may be completely price inelastic, basing such a conclusion on the fact that the number or quality of the students applying over the last 15 years has not decreased despite the doubling of the tuition fees over the same period of time is not the only consideration that should be examined. In finding out if the demand for admission is completely price inelastic, it is important to not only examine the figures from a single university but also the figures from other universities.
Education and therefore admission is a good that is not easy to quantify. The continued influx of students despite the doubling of tuition fees could merely be a function of the improved performance of the university over the same period of time. Given that this is the case, it cannot be said that the demand for admission is completely price inelastic. Another factor that must be examined is the number of students who are applying for all universities.
According to the law of supply and demand, the price of a good can continually increase without a noticeable change in demand if the supply is limited. Applying this theory to the case at hand, it can safely be argued that the demand for admission is not completely price inelastic but is rather explained by the fact that there is a lack of universities to begin with. Given the limited supply, students will still enroll at the said university despite the doubling of the tuition rates because of a lack of universities.
Price elasticity or lack thereof can be explained by many factors. The presence of alternatives or lack thereof would be one possible explanation. Another perspective would be to consider the fact that even if the price for education has increased, there has also been a corresponding increase in the wages/income of people and improvement in the standard of living. Basing the assumption on a single observation is not enough such as the assertion of the university official in this case.
Courtney from Study Moose
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