The recent discussion in California community colleges about the possibility of charging higher prices for courses in high demand pushes us to put our economists’ hats on to gain some perspective on this controversial idea. As state funding fails to keep up with enrollments in public colleges around the country, many states are struggling to meet the needs of students. Tuition levels have increased quite dramatically in recent years as institutions look for ways to replace the state revenues on which they have depended.
General tuition increases generate anger. But increases limited to specific courses seem to generate even more anger. Will low-income students be excluded from courses they need to graduate? Do we really want to ration access to high-demand courses through the price system?
It is not uncommon for schools to charge lab fees for science and studio art courses or to charge more for engineering programs, where the costs of providing education are significantly higher than in other fields. These price differentials are responses to supply side factors. Airlines raise their prices when fuel prices increase. McDonald’s is likely to raise the price of a Big Mac if they have to pay more for the beef (although not, we are assured, pink slime) that goes into the burgers.
But the issue now on the table relates to the demand side of the market. It’s not that freshman comp and introductory biology classes have become more expensive to provide. In fact, they have probably become cheaper as they are more often taught by adjuncts instead of regular members of the faculty. But left to its own devices, the market also generates higher prices when more people want a product that is in limited supply. Parents paid a fortune for Cabbage Patch dolls in the 1980s because every kid had to have one. Coca-Cola doesn’t actually cost more to produce than store-brand cola, but high levels of demand lead to higher prices. So if we allowed market forces to be in control, required courses would have higher price tags than electives. Is this price gouging – like charging more for snow shovels during a storm? Or is it a reasonable rationing mechanism?
What happens if you don’t respond to excess demand by raising the price? What can you do instead? And what kinds of tradeoffs do you face in deciding how to manage the students waiting for spaces? The range of options is really pretty limited. We can make people wait in line or we can develop a more systematic method of choosing among eager consumers. That might be through some evidence-based method for choosing those who either need the product most or have characteristics making them most likely to use it well. Or it might be through a lottery of some sort. <Read more.>