The Economic Cost of an Education

This is an exercise that I do with my first year students to see if they really want to complete a Bachelor Degree. How much will your degree cost?

The Accounting students are always the first to respond. Forty courses at $350 per course is $14,000 plus another $4,000 for textbooks. Maybe add $1,600 for transit passes and a couple of hundred for paper, binders, pens etc. Answers typically come in around $20,000 for a 4-year business degree. (Canadian universities are heavily subsidized). Of course accountants don’t really understand costs the way economists do, so I wait patiently for the one glimmer of hope – that one student that has enough potential to warrant turning to the dark side.

Finally, a hand goes up. “What about the time that is spent going to school?” The bait has been taken! Reel them in and turn them into economists!

I suggest to my students that is takes about one hour outside of class for every hour in class to maintain a 3.0 GPA (B average). That’s eight hours per week for 14 weeks or 112 hours per course. Forty courses require 4,480 hours. In the Greater Vancouver area, unskilled jobs typically pay about $12 per hour. The value of the time spent is $53,760 at a minimum. Total cost $73,760. Textbook costs amount to about 5.4% of the total. Note that as tuition and/or the value of time increases, the textbook percentage drops.

It is because of this calculation that I cannot understand the logic behind a federal rule concerning textbooks that was discussed in the July 22nd edition of the Fort Worth Star-Telegram. (Click here for article).

We have previously blogged on the cause of undergraduate waiting lists. Shortages occur when governments set prices below the market equilibrium. So now the US government is going to regulate textbook prices. The next time you go to your doctor, won’t it be comforting to know that he or she didn’t read the textbook because it wasn’t available? Shortages will occur. Authors require compensation and publishers are profit maximizers.

For what it’s worth, I choose the textbook that I believe is most suitable to my teaching style and the learning objectives of the course. I have never made a decision based on the price of a textbook and hope that I never do. Anyone that doesn’t like my decision is free to take a course from another instructor or at another institution. Or, perhaps, they can purchase a copy of Economics For Dummies ($21.99) and watch a YouTube video.