In the first couple weeks of any survey course in the
principles of economics, students are taught that prices are determined by the
interactions of consumers (demand) and producers (supply). Prices for many
things, such as oil, or of common stocks, constantly change with the frequent
shifts in the willingness of consumers and producers to buy or sell the good or
service in question.
Yet the price of college–tuition fees–seems to be
determined differently. For starters, tuition fees change but once a year, not
constantly. Universities are like restaurants, with “menus” giving prices for a
variety of different offerings, with the menu changing once a year. For many schools, however, the listed price
is not what economists call an “equilibrium” price–a price equating quantity
demanded with quantity supplied. Rather, thousands are turned away at the
listed price at selective admission universities. Also, massive price discrimination exists, so
many customers–often a majority–pay less than the stated or sticker price.
Amidst all of this, schools typically charge students the
same regardless of their major. A committee advising Florida Governor Rick
Scott has recommended a move to differential pricing–majors would pay
differing amounts. The goal is partly to entice students into the STEM
disciplines (science, technology, engineering and math) on grounds that our
future would be enhanced by having more scientists relative to, say, English
majors or anthropologists. By making STEM tuition fees lower, we will encourage
enrollment expansion in those fields. Ohio University’s Board of Trustees
recently considered (but did not yet adopt) a multiple-price approach, and
other schools are doing so.