In order to comprehend and evaluate thesituation at hand, it may be beneficial to review this case study and summarizethe key points. In this case, the college’s Admissions Director, Susan Hansen,proposes to upsurge tuition costs and reduce financial aid that is beingoffered to students in hopes that it’ll bring in more students which will solvethe school’s financial problem. Susan has taken the time to review otherinstitutions history regarding tuition and financial aid, and found that collegesthat raise tuition receive more applicants, while those who lowered theirtuition drew in fewer students (Brickley, Smith, & Zimmerman, 2016, p.124).Analysis To begin, it’s important to beaware of the law of demand.
It states that demand curves will normally slopedownhill when people buy less due to product increase. It is critical for theadmissions director to keep in mind that the quantity demanded for goodsdiffers inversely with cost (Brickley, Smith, & Zimmerman, 2016, p. 123).It is clear in this case that Hansen is attempting to use the law of demandthinking that is she raises the cost of tuition this will result in moreapplicants which will resolve the school’s financial problems, but there aremore factors to be included in this. Hansen should also be aware of elasticityof demand.
This measures the elasticity, of a good or service after a change innothing but the price. When calculating price elasticities, we use arcelasticity:?= -?Q/(Q1 + Q2)/2 ÷ ?P/(P1 + P2)/2When calculating price elasticity, theyrest between zero to infinity. After completing the equation and the result ofprice elasticity is zero, then quantity demanded is unaltered by cost. “Demandis elastic if the price elasticity is greater than one, unitary if equal toone, and inelastic if less than one.” (Brickley, Smith, & Zimmerman, 2016,p. 125).An importantaspect that the admissions director should consider is the fact that manystudents rely on financial aid to be able to go to college and receive a propereducation. By raising the cost of tuition and reducing financial aid this mayhave students reconsider applying this institution.
Students may then begin tolook into other university programs that are quite similar but have a cheapertuition cost and offer more financial aid. When reviewing other institutions inthis case, it appears that the demand curve slope goes up, which may be aresult of those universities offering more financial aid. In this case,students may not even bother applying to the institution Hansen works at andwould apply to others. In the end, this may not help solve the school’sfinancial problem which is Hansen’s main goal.In addition, it isimportant to include the reason for the increase in the cost of tuition. Hansenmust do some research on other institutions and review why they decided toincrease the prices on tuition. Universities may not increase tuition justbecause they want to, there needs to be an explanation to students as to whythey’re paying this much to attend this university, and what this institutionhas to offer that others do not. At this university, student’s will have gonefrom paying $15,000 for tuition to $25,000.
This is a $10,000 increase, andstudents will want to know the reason behind it. Why would students choose topay an extra ten grand to attend this school, when they could attend anotherwith the same program, that is cheaper and offers more financial aid? Hansenneeds to include what features that university has that makes the school muchmore expensive than the rest, and how it differs from other institutions. Takeinto account, Ivy League schools. The cost of tuition to attend theseuniversities varies from $40,000 to $50,000. Yet, people pay this high costbecause they are in the midst of the first and most prestige of all highereducation universities offered within the United States.
For this reason,students are willing to pay to attend these special universities versus non-ivyleague schools. Students are not going to want to apply to a university wherethey can’t tell the reason as to why they may have to pay so much to attend it.The AdmissionsDirector needs to take an account how critical financial aid is for these newand upcoming students.
It is basically a make or break for them when attendinga university. Hansen is predicting that once they increase the cost of tuition,and reduce financial aid then that will resolve the university’s financialissues. However, what Hansen is failing to realize is that once they increasethe cost of tuition, then the demand for financial aid will increase as well. Dueto this, students will have no choice but to apply to other schools who willoffer both a cheaper tuition and more financial aid. Not only is this a problemfor potential new students, but it may also be a major issue for currentstudents. Some may have to transfer to another university if they’re unable toafford their education there anymore. This will in no way help the universitywith their financial problems.
After evaluatingMs. Hansen’s analysis and recommendation, it is safe to say that I would infact reject her proposal to increase tuition to $25,000 from $15,000. There aremany reasons as to why I’m choosing to decline Ms. Hansen’s recommendation.First of all, this will not bring in more students to the University, but itwill in fact drive students away from applying to the school, and may alsocause current students to leave as well.
Students will not be able to afford toattend a university that increases their tuition by $10,000 while also loweringtheir financial aid. This is especially unlikely because this institution hasnot come up with a reason to tell students why they decided to increase tuitioncosts. They have no way of telling anyone the reason their school is betterthan another. If the university is really attempting to increase tuition inorder to solve the financial problem, I would recommend increasing tuition by acouple thousand dollars, but they would also need to increase financial aid aswell. Again, Hansen would need to be aware of elasticity of demand.
This wouldbe able to tell her if she will experience an increase or decrease in tuitionrevenue. It is almost certain that Hansen would experience a decrease due tothe law of demand which states that demand curves will normally slope downhillwhen people buy less due to product increase. The university should spend sometime focusing on creating features that add significance to the institutionwhich may be associated with the reason for tuition increase.