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Lecture Issues in economics today - Chapter 25

The main contents of this chapter include all of the following: Marginal utility, the law of diminishing returns, total utility, maximizing utility, the water-diamond paradox, consumer surplus. | Chapter 25 Education Chapter Outline INVESTMENTS IN HUMAN CAPITAL SHOULD WE SPEND MORE? SCHOOL REFORM ISSUES COLLEGE AND UNIVERSITY EDUCATION Investments in Human Capital Human Capital: the ability of a person to create goods and services An education is an investment like any other. You incur costs early You reap rewards later Any investment only makes economic sense if the net present value (the present value of the benefits minus the present value of the costs) is positive. Why “Free” Public Schools are not “Free” Taxpayers pay $389 billion in taxes to support the system. Some states and school districts have fees (such as textbook rental) that parents must pay. Analyzing the Education Decision If parents had to pay the entire cost of K-12 education and chose not to send their children to school they would still incur daycare costs for their smaller children. Parents would then compare the present value of benefits to the present value of the tuition costs minus daycare costs. Why | Chapter 25 Education Chapter Outline INVESTMENTS IN HUMAN CAPITAL SHOULD WE SPEND MORE? SCHOOL REFORM ISSUES COLLEGE AND UNIVERSITY EDUCATION Investments in Human Capital Human Capital: the ability of a person to create goods and services An education is an investment like any other. You incur costs early You reap rewards later Any investment only makes economic sense if the net present value (the present value of the benefits minus the present value of the costs) is positive. Why “Free” Public Schools are not “Free” Taxpayers pay $389 billion in taxes to support the system. Some states and school districts have fees (such as textbook rental) that parents must pay. Analyzing the Education Decision If parents had to pay the entire cost of K-12 education and chose not to send their children to school they would still incur daycare costs for their smaller children. Parents would then compare the present value of benefits to the present value of the tuition costs minus daycare costs. Why “Free” Public School Makes Economic Sense The external benefits (the benefits to the rest of society that result from a child being educated) are such that the efficient price is zero. External benefits include the social stability that is enhanced by providing opportunity for all to succeed. the more intelligent voting population. the greater tax base associated with higher incomes. Modeling External Benefits Social Benefit External Benefits 0 Enrolled Students D S Tuition T* S* T’ S’ What Schools Get What Parents Pay Should We Spend More? What we get for our $300 billion in tax money More real spending per student Lower student-teacher ratios Flat to declining SATs Increasing high school graduation rates More Per Student Spending 1996 Dollars Lower Student-Teacher Ratios Flat to Declining SATs Higher High School Graduation Rates Cautions Against Quick Conclusions Much of the increased spending has gone for Noninstructional spending (e.g.Janitors, secretaries, administration) Special