Rock Street, San Francisco

In order to comprehend and evaluate the
situation at hand, it may be beneficial to review this case study and summarize
the key points. In this case, the college’s Admissions Director, Susan Hansen,
proposes to upsurge tuition costs and reduce financial aid that is being
offered to students in hopes that it’ll bring in more students which will solve
the school’s financial problem. Susan has taken the time to review other
institutions history regarding tuition and financial aid, and found that colleges
that raise tuition receive more applicants, while those who lowered their
tuition drew in fewer students (Brickley, Smith, & Zimmerman, 2016, p.

124).

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Analysis

To begin, it’s important to be
aware of the law of demand. It states that demand curves will normally slope
downhill when people buy less due to product increase. It is critical for the
admissions director to keep in mind that the quantity demanded for goods
differs inversely with cost (Brickley, Smith, & Zimmerman, 2016, p. 123).

It is clear in this case that Hansen is attempting to use the law of demand
thinking that is she raises the cost of tuition this will result in more
applicants which will resolve the school’s financial problems, but there are
more factors to be included in this. Hansen should also be aware of elasticity
of demand. This measures the elasticity, of a good or service after a change in
nothing but the price. When calculating price elasticities, we use arc
elasticity:

?
= -?Q/(Q1 + Q2)/2 ÷ ?P/(P1 + P2)/2

When calculating price elasticity, they
rest between zero to infinity. After completing the equation and the result of
price elasticity is zero, then quantity demanded is unaltered by cost. “Demand
is elastic if the price elasticity is greater than one, unitary if equal to
one, and inelastic if less than one.” (Brickley, Smith, & Zimmerman, 2016,
p. 125).

An important
aspect that the admissions director should consider is the fact that many
students rely on financial aid to be able to go to college and receive a proper
education. By raising the cost of tuition and reducing financial aid this may
have students reconsider applying this institution. Students may then begin to
look into other university programs that are quite similar but have a cheaper
tuition cost and offer more financial aid. When reviewing other institutions in
this case, it appears that the demand curve slope goes up, which may be a
result of those universities offering more financial aid. In this case,
students may not even bother applying to the institution Hansen works at and
would apply to others. In the end, this may not help solve the school’s
financial problem which is Hansen’s main goal.

important to include the reason for the increase in the cost of tuition. Hansen
must do some research on other institutions and review why they decided to
increase the prices on tuition. Universities may not increase tuition just
because they want to, there needs to be an explanation to students as to why
they’re paying this much to attend this university, and what this institution
has to offer that others do not. At this university, student’s will have gone
from paying \$15,000 for tuition to \$25,000. This is a \$10,000 increase, and
students will want to know the reason behind it. Why would students choose to
pay an extra ten grand to attend this school, when they could attend another
with the same program, that is cheaper and offers more financial aid? Hansen
needs to include what features that university has that makes the school much
more expensive than the rest, and how it differs from other institutions. Take
into account, Ivy League schools. The cost of tuition to attend these
universities varies from \$40,000 to \$50,000. Yet, people pay this high cost
because they are in the midst of the first and most prestige of all higher
education universities offered within the United States. For this reason,
students are willing to pay to attend these special universities versus non-ivy
league schools. Students are not going to want to apply to a university where
they can’t tell the reason as to why they may have to pay so much to attend it.

Director needs to take an account how critical financial aid is for these new
and upcoming students. It is basically a make or break for them when attending
a university. Hansen is predicting that once they increase the cost of tuition,
and reduce financial aid then that will resolve the university’s financial
issues. However, what Hansen is failing to realize is that once they increase
the cost of tuition, then the demand for financial aid will increase as well. Due
to this, students will have no choice but to apply to other schools who will
offer both a cheaper tuition and more financial aid. Not only is this a problem
for potential new students, but it may also be a major issue for current
students. Some may have to transfer to another university if they’re unable to
afford their education there anymore. This will in no way help the university
with their financial problems.

After evaluating
Ms. Hansen’s analysis and recommendation, it is safe to say that I would in
fact reject her proposal to increase tuition to \$25,000 from \$15,000. There are
many 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 it
will in fact drive students away from applying to the school, and may also
cause current students to leave as well. Students will not be able to afford to
attend a university that increases their tuition by \$10,000 while also lowering
their financial aid. This is especially unlikely because this institution has
not come up with a reason to tell students why they decided to increase tuition
costs. They have no way of telling anyone the reason their school is better
than another. If the university is really attempting to increase tuition in
order to solve the financial problem, I would recommend increasing tuition by a
couple thousand dollars, but they would also need to increase financial aid as
well. Again, Hansen would need to be aware of elasticity of demand. This would
be able to tell her if she will experience an increase or decrease in tuition
revenue. It is almost certain that Hansen would experience a decrease due to
the law of demand which states that demand curves will normally slope downhill
when people buy less due to product increase. The university should spend some
time focusing on creating features that add significance to the institution
which may be associated with the reason for tuition increase.