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Business Management Question
Purpose
The report aims at understanding the microeconomic factors that affect demand and supply of higher education. As a policy analyst, the researcher evaluates the responsiveness of the students to any change in the fee structure at the various universities. It is a comparative quantitative analysis where the change in demand for the courses in a particular set of universities is compared to the change in the price of courses for another set of universities. By taking few examples (as given), the report attempts to conceptualize vital economic terms like own-price and cross-price elasticity of demand.
Method
Elasticity: This is defined as the degree of responsiveness towards a (1 unit) change in price (Imbs & Mejean, 2015). A change in the price of a product generally changes the quantity demanded that particular commodity. To measure this change in quantity demanded, elasticity is used (Salvatore, 2008).
If elasticity is > 1, it means that a slight change in price will affect the quantity demanded.
If elasticity is = 1, it means that a slight change in price will affect the demand for 1 unit.
If elasticity is < 1, it means that a slight change in price will not affect the quantity demanded at all (Baumol & Blinder, 2015).
Own-price elasticity: This is the rate of response to the demand for the commodity with a change in its own price (Rios, et al., 2013).
Cross-price elasticity: This is the rate of response to the demand for the commodity with a change in the price of some other commodity or commodities (Otani & El-Hodiri, 2012). This is a comparative analysis which shows that the set of commodities is substitutes or complementary (Hursh & Roma, 2015).
Price elasticity of demand formula:
Source- (Nicholson & Snyder, 2014)
Here, % change in quantity demanded is the % change in students’ application for the courses in these universities = 7% (decrease)
And, % change in price is the % change in universities’ fees = 35% (increase)
And, Cross-Price Elasticity of Demand formula is;
Source- (Salvatore, 2008)
Results
Here, good X are the courses offered in those universities that did not increase their fees. Change in Demand for these universities is = 12% (increase)
And good Y are the courses offered by the universities that have raised their fees. Change in Price of these courses at the above-considered universities is = 35% (increase)
Thus, Price elasticity of demand for the courses at the universities that increased their fees by 35% is calculated as,
= 7/35
= 0.2
Cross-price elasticity of demand for courses at universities that did not increase their fees with respect to the price of courses at universities that did increase their fees, is calculated as:
= 12/ 35 (since it is given that due to a 35% increase in the fees at few universities, caused a 12% increase in demand for the courses in the remaining universities)
= 0.3428
= 0.34 (approx.)
Discussion
Result Interpretation:
If the price elasticity of demand is > 1, then highly elastic.
If the price elasticity of demand is = 1, then unit elastic.
If the price elasticity of demand is < 1, then inelastic (Salvatore, 2008).
Since the results show that price elasticity is 0.2, and it is < 1, demand is price inelastic.
Factors responsible for the degree elasticity at these universities:
Demand is price inelastic. It means that despite the change in prices, the students do not respond to it by decreasing their demand or switching over to other universities. Reasons can be as follows:
(a) Dependable set of professors
(b) Motivational training by the teachers
(c) Advanced teaching techniques
(d) Adequate study material and proper learning guides
(e) A rising fee structure is associated with a better learning environment.
To check if the tuition fee revenues will probably increase or decrease at these universities:
Since demand is price inelastic for the courses offered in these universities, with a price elastic of 0.2, the universities are likely to witness an increase in revenues. This is because not many students will find it advisable to switch over to other universities due to a well-equipped learning techniques in these universities.
To evaluate if the courses offered at these 2 universities are substitute or complementary by nature:
Substitute goods: The goods that are an almost exact substitute for each other are called substitute goods (Allan Layton, et al., 2011). For example, Samsung and Nokia smartphones. If the price of Samsung phones rises, (assuming both the brands produce homogeneous goods) then customers will shift from Samsung to Nokia.
Complementary goods: If the demand for one good is dependent on the demand for another good, then the goods are complementary (Allan Layton, et al., 2011). For example, the demand for diesel cars can rise with the fall in diesel’s price. Thus, diesel and diesel cars are complementary by nature since using more of one good requires more of another good.
Cross-price elasticity is an important measure in this respect, and can be interpreted as:
It cross-price elasticity of demand is > 0, and then the goods are substituted.
It cross-price elasticity of demand is = 0, and then the goods are independent.
It cross-price elasticity of demand is < 0, and then the goods are a complement (Salvatore, 2008).
Since the cross-price elasticity of demand has been found out to be 0.34, which is a positive value and > 0, thus the goods are a substitute in nature.
To evaluate the demand elasticity for the courses at the universities that did not increase their fees with respect to the prices of the courses at the universities that did increase their fees.
The cross-price elasticity of demand is the rate of change in demand for the courses in the universities that did not change their fees with respect to the increased fees at the other universities. The value is 0.34. It implies that the cross price elasticity of demand for the courses in the universities that did not change their fees when the price of the fees was raised by the remaining universities is 0.34. This positive value indicates that if the cost of the fees in those universities goes up, the demand for the courses in the alternate universities goes up as well.
The importance of the observed degree of elasticity:
A positive cross-price elasticity of demand indicates that the universities should be very careful while changing their fee structure. Since the university courses are almost substituted by nature, change in fees will make students respond to this changed costs. However, for the universities that increased their fees, (see 1.) the demand is almost inelastic with value 0.2. It shows the students’ less responsiveness towards the restructures course-fees.
Recommendations
Arguments of Education Minister justified:
The Minister of Education can argue that the changes in demand for the courses are not necessarily related to the fee changes. His arguments can be following the various other factors that affect demand:
Income: after price, the next important factor that drives students in and out of a university is the income. Students will opt for the courses that are affordable. The inelastic nature of the demand for the expensive courses can be on account of their higher incomes. Poor students will still be affected when the universities raise their fees.
The price of related courses: with quite a few other universities offering the similar courses, there is a large set to choose from. Thus, students will study and compare the costs of a particular course in all the universities. Those with reasonable course fees will definitely gain on more students.
Tastes and preference: Students have their ‘dream colleges’. And no factors like course fees or low incomes will not be seen as big obstacles then.
Expectations: Most of the students expect to get a job soon after completing their higher education. Good placements and job-assistance will be an added advantage.
An increasing number of consumers: With a teeming youth population seeking for premiere institutes, the demand for good colleges is at its peak. This excess demand is often seen as an advantage that the universities often exploit, consequently raising fees.
Socio-cultural factors: factors like age. Sex and cultural diversities also affect higher-education motives. Preference for non-co-ed colleges, convents and missionaries, and other religious beliefs can impact admission attitudes of the students.
Business Management Solution
Answer 1 a:
Sustainable development is defined as the ability to make development sustainable. This means ensuring the development to meet the needs and requirement s of the present without much compromising with the ability of the future generations so that they can mind their need and requirements themselves (Baker, 2006). For the development, the basic human needs are very essential, but to sustain the development and further the basic needs of humans, economic growth is also very important (Elliott, 2002). The equity in sharing the resources must prevail in society among the rich and the poor. Though not absolute limits, the concept of sustainable development does denote limits which are imposed on resources of the environmental organisations by the present technology and society as well as by the ability of the biosphere to stand all the human activities
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