17.2.05 [ The Determinants of Undergraduate Tuition Levels ] 4 comments 
OK. So I am trying to model tuition prices. Basically, one has always heard complaints about the cost of tuition; and, it is indeed a lot of money: half your yearly income at minimum wage, full-time. And to consider the cost of living: rent a pad for between 300-400 dollars per month; pay for gas from 40-150 dollars per month; transit is $60/mo; food will set you back $200-$300/mo; four hours a day for school work; three hours per day for class; transit time. By conservative estimates, $600/mo is required to live for one month. That makes $7200/year plus tuition (around $4500) for $11700/year to go to school (fall and winter classes only. Full time minimum wage for one year: $13520. The conservationist's budget has $1820 in yearly surplus, which could easily be eaten up by any entertainment purchase (dinner, drugs, movies, liquor, ski lift tickets, car insurance, others), though I'm sure there are some who buy a savings bond: this amount could be reasonably eaten up by consumption expenditures (without having to live a lavish lifestyle).
It seems that the average university student is justified in her inquiry into the equity of her tuition price.
So, to make a proper analysis, to draw proper conclusions about the nature of these costs, to indeed evaluate the fairness of the tuition price mechanism, a model must be constructed which can help judge the equity of tuition prices. If the price is genuinely too high, then why do people continue to purchase post-secondary education. Perhaps, then, there is some exploitation of market power--maybe people are indeed forgoing education and there is a market failure where price is too high, in excess of universities' expenditures. Though, if this is the case, then the classical criticism, the government is not giving enough money, is unjustified.
Perhaps this is a short-term fluxuation. Perhaps the demand for education has been shocked higher and the universities cannot adjust capacity fast enough. Supply becomes limited (buildings take time and money to construct so there may not be enough available classrooms or computer facilities or whatever), the short-term recourse is to increase prices. Then we are forced to re-examine demand.
The elasticity of demand determines the response in quantity purchased. The marginal propensity to consume education in preference to other goods establishes how much of the $1820/year our prototypical low-wage student is willing to forgo to retain her six daily hours of school. There are three factors here: disposable income; tuition price; marginal propensity to consume university education. Though this is one case, barring fluxuation in disposabl income will allow us to consider the price elasticity of demand which chokes once that $1820 is hit. Personal preference then decides the shape of the function.
Personal preference with respect to school is complex. There are employability options, knowledge-gaining factors, personal growth, life experiences, many factors that are difficult to quantify: a unified depiction of the demand for tuition will not be revealing because assigning dollar values to these things is, not only far to complicated for this model, but meaningless. Instead, This model should be directed to where there is measurable data: the supply side.
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