Can someone explain why government subsidies to colleges drives up tuition? I've seen it mentioned on this board a few times, but I've never understood the logic behind it. It just seems counter-intuitive to me.
Bump with boobs
Its mostly through student loans. Every can obtain the capital to pay for college so price no longer becomes a big point of competition. When you take out a loan to pay for college who cares whether the tuition is 17,000 a year or 23,000? Its not your money your spending. So colleges always fill up no matter what tuition they charge so they have no incentive to make price cuts.
>>69606306
When demand increases, prices go up. Holy shit, anon, how do you function?
>>69607428
/thread
>>69607363
>>69607428
I thought prices would go down as demand goes up
t. barely pulled a C in econ
>>69606306
In essence, if a student is expecting the gov't to foot part of the bill, they'll be willing to pay a higher price.
Let's say a year of school is $5000. The gov't steps in and offers to pay $2000 of that for you. The school can hike their price to anything below $7000 and you still benefit. Heck, the school can perhaps hike tuition to $8000, and some students will still be satisfied to pay $6000. Why? Because they're getting an apparent deal: I'm getting $8k worth of education for only $6k!
Unsure if this is the correct answer, but it's plausible.
>>69607772
And an F in common sense, apparently.
>>69608098
no bully
>>69606306
Colleges and universities are businesses, even the non-profit ones. A business will charge as much as people can/will pay. Consider the following scenarios.
>No government subsidies/loans
>Students can only afford to pay $X
>Colleges charge $X
>Government loans, on average, $Y to each student
>Students can now afford to pay $X+$Y
>Colleges charge $X+$Y
>>69608412
Consider suicide.
>>69606306
It increases demand
>The quantity of people that are ready, willing and immediately able (though fucked in the long term with debt, unemployability, and lost job experience)
Faster than supply
>The physical university space, quantity of professors, number of courses offered, etc
People think that this dynamic is complex like effects international monetary policy changes or opening up new markets or the trading of some of the more complex derivatives -
when in fact it's just a very simple Econ 101 principle.
>>69608459
>>69608841
I see
Is there anyway to safely reverse the policy?
>>69608459
/Thread
>>69606306
>Can someone explain why government subsidies to colleges drives up tuition?
because price ceases to be relevant to the consumer when he doesn't pay out of his own pocket.
>>69609008
>Is there anyway to safely reverse the policy?
remove subsidies
remove state-guaranteed student loans
all this stuff is artificially inflating demand, which in turn drives up prices. remove this artificial demand and prices will normalize.
>>69608459
yep. same reason why corp welfare is stupid.
>>69609428
That's what I was assuming, I just didn't know if that would have any negative effects
>>69607772
Come on anon, don't pull the
>"So what; I can't parrot back what the textbook/ professor told me"
card.
You sell widgets.
You want people to buy your widgets to make a profit, or at least cover the costs associated with procuring them.
You first offer the widgets at the lowest possible price that won't run you a loss, to attract customers.
Let's assume the demand for that widget is elastic, and responds well to your drop in price.
People start swarming in for your widgets- more people than you have widgets on hand.
You realize that you can raise the price to a point where every widget in your inventory will be sold, and that will yield you the greatest profit.
So you raise it a dollar- one person leaves. By 5 dollars- a couple more people leave. By 10 dollars- some people leave. Total demand has decreased. However, there is still sufficient demand for all your widgets to be sold.
>>69607128
Sucks she turned out being a coal burner
Any time the government funds anything, the cost of that product or service mysteriously goes through the roof.
When I was in the Air Force, we'd have buyers get charged $1,000 for a fucking office chair. Any time somebody in the private sector is trying to sell something to the government, they try to gouge the price of it because they know there's a good chance the government buyer will just pay it because he doesn't give a fuck because it's not his money.
In terms of school. tuition costs will skyrocket because the students don't give a fuck if the government is footing most of the bill for it. The school will raise the tuition cost simply because it can get away with doing it.
>>69607772
If your supply is inelastic, the more people demand, the more limited the supply is and therefore prices will.
If you subsidise demand, this is what occures. So to keep cost low or as low as they can keep them and still run, they have to lower standards in order to hire more teachers to fill in the spaces.
and since there are more teachers at a lower quality then wages drop or stagnates(because of unions)
>>69610429
>prices will.
price will rise
>>69609604
Given build up of a government system
>In this case it leads to price distortion in the education market
its immediate repeal will cause a large "shock".
>There are people on >>>/biz/ and elsewhere who might argue it's not a traditional bubble, because it's not as contagious to the other sectors of the economy, but I disagree on both counts.
Suddenly, higher education shrinks. Many scools (many of which are run as private investments with an education component ) are indebted , very overextended and only survive with the expectations of:
>more students every year
>steady tuition hikes
A student loan and grant reform would lead to :
>fewer students each year
>less tuition coming in
thus mass closures, and negatively affect their vendors and investors. Some say this is for the better, as failed business models simply die out in the free market.
That said, we would need an alternative for those students, so we may perhaps start offering accredited trade schools and technical certification classes.
>>69607772
nigga just look at the graph, you don't even need an in-depth understanding to intuit what it means. As the demand curve shifts to the right (increases) the equilibrium price (the point at which the demand curve and supply curve intersect) rises. Prices go up. Of course in the real world there are many other factors and supply usually does not remain 100% static, but that's as simple as I can make it.
