Article Summary
Posted by bio_man   Oct 14, 2018    3264 views

Out-of-pocket tuition rates for any two college students can differ by considerable amounts even if the students happen to major in the same subjects and enroll in many of the same courses. The reason is called tuition discounting in the university world. Colleges and universities offer students diverse financial aid packages depending on their financial need.

To document their financial need, students must provide detailed information about family income and wealth. The information helps financial aid officers determine what different families are most likely to be willing and able to pay, so that the university can engage in price discrimination. Basically, lower income families are either unwilling or unable to pay a higher price and thus are offered a lower one. As family income rises, universities have discovered that they can then charge higher prices (smaller financial aid package). They have an array of aid packages based on income and wealth levels of different families.

Does the educational product supplied by colleges satisfy all three conditions necessary for price discrimination? Yes. Each college and university faces a downward-sloping demand curve because they have found that they can get more students by lowering price. It is easy to identify different buyers (the students) with different price elasticities of demand by requiring students to disclose family income and wealth to qualify for financial aid. Finally, students cannot resell their education to other students.

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