Setting Tuition and Financial Aid

In: Business and Management

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Case Assignment Chapter 4
8/31/2014
MBA-540

Chapter 4: Setting Tuition and Financial Aid

1. Evaluate Susan’s analysis and recommendation.

At first sight it is easy to see why Susan would believe that the demand for applying to a college increases when the cost of tuition is increased, based off the statistics seen at colleges such as Ursinus College and Wesleyan College. Ursinus increased the cost of tuition and the demand increased. Wesleyan did the opposite and decreased there tuition and the demand decreased. Susan’s belief in an upward slope, where the quanitity demanded increased with price, is seen as a Giffen good. Giffen good is when “a good for which a demand increases as the price increases and falls when the price decreases” (Investopedia, 2014). This contradicts the law of demand. As discussed in the text the law of demand refers to the demand curve sloping downwards because individuals buy less of a good and not more when the price increases (Brickley, Smith & Zimmerman, 2009). Giffen good is very rare to the point where there is actual debate about their existence, because the good in question must be considered an inferior good and there must be a lack of close substitutes (Investopedia, 2014). It would be irresponsible as a consultant to make a decision based on just Susan’s theory, especially when there could be other factors that not being considered for the affects of this demand increase over the increase in tuition. It is important to consider all the factors that affect demand on a product or good, so an appropriate decision can be reached on pricing, output, capital expenditures and other strategic issues. Using a demand function can give a mathematical representation between the quantity that is being demanded and all the factors influencing the demand (Brickley, Smith, & Zimmerman, 2009). I would not follow…...

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