Over the last 30 years in the United States, the real price of a college education (i.e., after adjusting for inflation) has increased by almost 70 percent. Over the same period, an increasing number of high school graduates have sought a college education. (Nationwide college enrollments almost doubled over this period.) While faculty salaries have barely kept pace with inflation, administrative staffing (and expenditures) and capital costs have increased significantly while government support to universities (particularly research funding) has been cut.
(a) College enrollments increased at the same time that average tuition rose dramatically. Does this contradict the law of downward-sloping demand? Explain.
(b) Use supply and demand model to explain the dramatic rise in the price of a college education.
