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NOTE HALL.COM STUDY GUIDE FOR INDV 103 50 MC Questions 19 Is Higher Education W

NOTE HALL.COM STUDY GUIDE FOR INDV 103 50 MC Questions 19 Is Higher Education Worth the Cost? (Chapters 29 & 30) 31 Income Distribution & Poverty (Chapters 32, 41, 42) STUDY THIS BEFORE TAKING THE ONLINE MIDTERMS FOR PRACTICE Higher Education • Subsidies to higher education benefits who? o Subsidies benefit those below poverty threshold, merit-based, military scholars, etc. • Government role/loan market: o The government role in America is just to subsidize education or encourage education to establish a more educated workforce and population. o The following are 3rd party payments for students:  Need-based financial aid: • Perkins loans: low interest loans o For students w/ exceptional financial need • PLUS loans: allow parents to borrow money for children’s college education • Supplemental Educational Opportunity Grant (SEOG): federal award for exceptional financial need in college • Work-study programs: jobs on campus to pay for tuition and are federally financed.  Merit-based financial aid: scholarships • Academics, athletics, etc.  Subsidized Stafford Loans: federal aid • Source of funds private/public universities o Private:  Fees/Tuition (tuition is the main source of funding)  Alumni donations o Public:  State government subsidies  Fees/tuition  Alumni donations • Major government subsidies (some of these are re-described from above) o Subsidized Stafford Loans: federal aid  Low-interest loans, no-payment until after studying (fed govt pays interest while in school)  Average loan size: $3,000 o Perkins loans: very low interest loans  For students with exceptional financial need o Pell grant: one of the most important grants for needy families. o NOT A LOAN  For low income families ($40k/year)  # of recipients: 5.4 million  Max size of grant: ~ $5,000  Lower income, higher grant • Rationalization of subsidies to university students : o More lower-income students will be able to afford high-level education o Subsidizing students will make more students go to university; with more students at university, more white-collar (high-end) jobs will be created and therefore society (the country) will benefit because the country moves closer to a service-producing nation rather than a goods-producing nation. • Total lifetime earnings differential between H.S and College: o Difference in total earnings • Civilian Labor Force Participation Rate: o The proportion of the civilian noninstitutional populations that is actively participating in the civilian labor force.  Formula: (civilian labor force)/(Population) • gives a rate or x100 gives a %  Population is above 16 years older and not in institutions • Calculate present value: we can calculate 2 amounts paid at different times from other another. o Used for investment purposes, to see if money can be made with the interest rate o Present value = (Payment)/(1+r)n • Payment= payment to be received in the future • r= interest rate • n= number of years before payment is received  Present value: the interest-adjusted value of future payment  i.e: you expect to receive a dividend of $200 in 5 years. To calculate the present value of that dividend, you would first answer the variables presented above:, r, n. The interest rate is 10%. • Present value = ($200)/(1+0.10)5 = $124.18 • Meaning: if you are going to receive this $200 dividend down the road, you would sell the right to that $200 dividend for $124.18 • Costs of higher education: o Cost has risen because of:  Rising demand • Demand stays high because of 3rd party payments such as federal loans, grants and scholarships. It makes one less likely to feel the impact of the higher price, much like insurance with healthcare. • As demand increases, demand for new buildings for the university increases, which increases cost significantly because of high marginal cost of buildings • As demand increases, tuition increases, fees increase  Lack of Market Discipline: • Universities don’t run on a business model; the demand for the college isn’t always dependent on low prices. The highest ranking colleges in the U.S have the highest tuition. • Their stocks aren’t traded.  De-emphasis of Undergraduate Education: • Many universities emphasize their graduate programs more which are much more costly (research, more expensive equipment) with less students; much of the financial burden placed on undergraduates.  Student: Staff increased over time • More teachers per students o 1 professor:10 students, etc. as opposed to more efficient such as 1:100, 1:200  Better Lives for Staff • Faculties share increased income of universities • Professor salaries increased by 50% since 1980 • Teaching loads have fallen (teachers not doing much) • Employment Definitions: o Structural unemployment: unemployment due to lack of literacy, skill, talent, or they live in different regions than where the job is, etc. This is always present even in a good-standing economy. o Cyclical unemployment: unemployment due to business cycle (economic recession to economic boom) o Frictional unemployment: unemployment of people being temporarily between jobs, searching for new ones o Seasonal unemployment: where specific industries or occupations are characterized by seasonal work which may lead to unemployment  Such as ski-park workers, dress-up Santas, Natural unemployment contains frictional, and structural because these will always happen but cyclical is because of the economy. From midterm test practice: (questions 31-33) The Labor force: everyone that can work; Employed + Unemployed 95 million + 7 million = 102 million Unemployment rate: unemployed / total labor force 7 million / 102 = 6.9% Cyclical Unemployment: Total Unemployed – natural unemployment(5 million in question 33) 7 million – 5 million = 2 million United States has 4% full-employment, because 4% is our natural unemployment rate • Starting salaries of graduates: o Engineering makes most money o Business degrees make a lot of money too; sciences, teaching are worst. Degree Start Salary 1. Engineering $49, 707 2. Comp. Program. $46, 775 3. Mathematics $46, 405 4. Economics $43, 419 5.Accounting $42, 104 6.Chemistry $41, 638 7. History $34,257 8. Elem. Teacher $30, 497 9. Philosophy $28, 234 From blackboard.eller.arizona.edu • Differential tuition/fees by major — o Not at UA; have at differential tuition by college: eller has 800$ differential (800 more than tuition and fee rate) o Diff tuition fees based on supply and demand; why? Think about it Earnings graph/HS/University grad From SLA session Y-axis is earnings, X-axis is time • Curve H is for a Highschool-only graduate o Areas B and F are the total lifetime earnings for a H.S student • Curve C is for a College graduate o Area A is negative, and is the money spent on additional schooling, such as books, tuition, fees, etc. o Areas E and F added are the total earnings for a college student • E is on top of F(earned by high school) so E is additional earnings by having a university education o Because A is what the college student spends, and because B is what the college student does not earn (while in school) and the highschool graduate does, A+B is the opportunity cost of the college student. o Because B are earnings that the college student could have obtained that the high school student did, B represents earnings foregone. o If a highschool student considers college, he/she must consider the net benefit of a college education; that is: if area E, the additional earnings by a college graduate is greater than: (B+F)earnings in high school + A (the cost of going to college) • Also to be considered is that if non-monetary values were added to the graph, area E would increase because the job is more specialized and more likely to vary, contribute to society or more enjoyable • Investment in human capital : See the reasoning in the above chart ^^ o For a person: investing in human capital means going to university to invest in increase in skill; it would be considering that the increased earnings are greater than all of the direct and indirect costs of going to college (such as time spent, tuition, etc.) o For a country as a whole: Investing in people to generate skills that benefit the economy: aka education. o “Expandable and self generating with use: as doctors get more experience, their knowledge base will increase, as will their endowment of human capital. The economics of scarcity is replaced by the economics of self- generation.”1 Income Distribution • Quintile (20% of 100%) • Highest/lowest quintiles in the U.S; solve for in Lorenz curve. Example to follow graph. o LOWEST QUARTILE: receives 4% of total income o HIGHEST QUARTILE: receives 40% of total income • Lorenz Curve: shows the actual income distribution From: http://en.wikipedia.org/wiki/Image:Lorenz-curve1.png o The line of perfect equality: at any point there is perfect income equality (i.e: the bottom 60% of people have 60% of the income. o Used for reference o i.e: the lowest 20% of households hold 10% of the income o i.e: 80% of the families receive 60% of income o How much does the top 20% receive? (look at graph) o 80% of bottom receives 60% of wealth 1. 100%(all income) – uploads/Litterature/ study-guide-for-indv-103.pdf