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Demand, Supply, and College Admissions

Nov 19, 2010 • Demand, Supply, and Markets, Households, Thinking Economically • 155 Views    No Comments

You might pay $1.50 to get a cup of coffee or $30 for a blouse. But what do students “pay” to get admitted to a college? And, at what “prices” will colleges accept people?  Several researchers developed a supply and demand model of the college admissions process. I found their approach fascinating. 

First we should identify the different components of their demand and supply graph. They defined price, their y-axis, as “admissions standards.”  You know what they meant. Grades, extracurricular activities, and test scores. Quantity, the x-axis, was the spaces in the freshman class. As for the curves, the applicants were on the demand side. Observing the law of demand, as “price” rose, applications decreased. Meanwhile, the college was on the supply side because those who could “pay” higher “prices” would have more available freshman class slots.

The researchers’ model assumed there were only 2 colleges. With one known as “better” than the other, the colleges should have attracted students with different credentials. But it did not quite work out that way.

The Yale Economic Review summarized the 42 page academic paper. Referring to the “noise” of the college admissions process, they said that misinformation, uncertainty, and the “hype of the marketplace” resulted in certain better students selecting the lower quality school. Furthermore, “…higher admissions standards might not correspond to the better college, as long as the worse college is either comparatively good enough or small enough, or if the application process is noisy enough.”

I do recommend looking at the paper to see the variables that determine who applies where and why.

The Economic Lesson

All of this returns us to the function of a market. Through a price mechanism that conveys information, markets allocate goods and services. Perhaps like oil and cotton and bananas, for the college admissions process a rather complicated market determines allocation.

 

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