The decision to increase or lower tuition has an effect on the different programs and levels of education that Nobody State University (NSU) can provide. The adoption of the decision to increase or lower tuition fees is noteworthy in light of the University’s desire to achieve its mission and vision, as well as its priorities. For eg, providing high-quality education while earning a fair profit. Raising or lowering the rate of tuition has an effect not only on the Institution but also on the continuing students and prospective students who may be involved in pursuing their studies at the listed university. This paper, therefore, examines whether the NSU attempts to raise more revenue through increasing tuition would necessarily result in more revenue. Certain particulars taken into consideration include conditions under which the revenue would rise, fall, or remain constant.
The approach towards determining whether an increase in tuition would lead to more revenue involves examining different related factors. First, it is imperative as informed by Baumol and Blinder (2012) that it is a major misunderstanding among the interested audience that the increase in the prices often leads to higher sales hence more revenue for organizations such as the Nobody State University in question. In this view, it is taken into account that increases in prices which in this case is the increase in tuition fees would not lead to more revenue for the University unless other influential factors are taken into account.
The theory of price elasticity and inelasticity can adequately explain the relationship between the demand for education and changes in tuition fees. As such, an increase in more revenue greatly depends on either elasticity demand or inelastic demand. According to Baumol and Blinder (2012), elasticity notes different ways in which a variable responds as well as relates to changes in other variables. For example, people register and attend lessons as well as classes in order to obtain the quality education and other related services. In this regard, education is the dependent variable that is affected by other independent variables including income, substitute universities, preferences, and costs. In line with the University’s intent to increase tuition to gain more revenue, the opportunity to do so depend on whether the changes in the price and competition posed by substitute universities have a measurable impact on the demand for education by continuing students as well as those who may be interested in joining the University in order to benefit from its services. On one hand, if the changes caused by tuition increase and competition arising from the substitute universities have a small impact on the demand for services offered by the SNU the demand is noted as being inelastic. On the other, if the changes caused by tuition increase and competition arising from the substitute universities have a great effect on the demand for services offered by the SNU the demand is noted as being elastic. Nevertheless, the inability of the aforementioned changes to cause smaller or greater impacts is considered unitary. In a natural operating environment, it inferred from Hall and Lieberman (2010) that increasing the tuition in an inelastic environment would lead rise in revenue collection, increasing the tuition in an elastic environment would result in fall of revenue collection while if the inelastic is balanced against elastic environments of adjustment, then the situation remains unitary in which revenue collection remains constant.
Comparatively, in a situation that the true price elasticity was -1.2, interpreted as being inelastic (Hall & Lieberman, 2010), the percentage change in demand for education by the interested students would be smaller compared to price changes. In such a situation, it is advisable that the University raises the tuition fees since it would be able to collect more revenues that it desires.
Subsequently, regarding assuming the responsibilities of NSU president in full understanding of the predicament he or she is faced with, the opportunity to increase revenue collection for the University is fundamentally based on two pillars. First, the collection of more revenue should be under inelastic environments in which raising the tuition fees would have a negligible effect on the demand for education. Education is a necessity, thus, raising the tuition fees while maintaining quality to the expectations of the clients’ putts off all the competitors in the name of alternative Universities. Offering quality education obtains client loyalty hence preferences and point of attraction to potential clients. Secondly, the University other than raising the prices should lower the prices to attract more clients which relatively increase the customer’s base resulting in more revenue for the NSU.
In summary, it is not necessarily true that raising prices of commodities leads to increase in profits or revenue collection. However, it should be noted that other than the prices, there are other related independent factors such as the source of substitute commodities, client’s tastes, as well as income levels that dictate the possibility of being able to collect more revenue (Hall & Lieberman, 2010). Therefore, the question of raising or lowering tuition for more revenue depends on the prevailing independent factors as well as the market base.
Baumol, W. J., & Blinder, A. S. (2012). Macroeconomics: Principles & policy. Mason, OH: South Western, Cengage Learning.
Hall, R. E., & Lieberman, M. (2010). Economics: Principles & applications. Mason, OH: South-Western Cengage Learning.