Chapter 17 - The economics of education. After completing this unit, you should be able to: Describe the level and changes in educational attainment over time, describe the costs and benefits of education, define human capital,…
Introduction to Economics: Social Issues and Economic Thinking Wendy A Stock Chapter 17 The Economics of Education Copyright © 2013 John Wiley & Sons, Inc / Photo Credit: ©Catherine Yeulet/iStockphoto PowerPoint Prepared by Z Pan After studying this chapter, you should be able to: Ø Ø Ø Describe the level and changes in educational attainment over time Describe the costs and benefits of education Define human capital Copyright © 2013 John Wiley & Sons, Inc Ø Ø Ø Model the positive externalities associated with education Evaluate why some education is publicly provided Describe some of the issues surrounding education reform Educational Attainment of U.S Population Copyright © 2013 John Wiley Costs of Education The costs of education include opportunity costs and direct costs Ø Ø Opportunity costs: the opportunity costs of education are measured as the value of foregone earnings, since time spent in school could have instead been spent working Direct costs: tuition, fees, books, supplies, and other items necessary to attend school Copyright © 2013 John Wiley Costs of Education Copyright © 2013 John Wiley Marginal Costs of Education Ø Marginal costs of education are the incremental costs associated with obtaining an additional year of education Copyright © 2013 John Wiley Benefits of Education Ø The Benefits of Education include: Ø Ø Job opportunities, pay, health Human Capital: The acquired skills and knowledge that make people more productive Copyright © 2013 John Wiley Impacts of power generation Ø Ø Private Marginal Costs are marginal costs that accrue only to the producers of a good or service Social Marginal Costs are marginal costs that accrue to society as a whole MC social = MC private + Negative Externality Copyright © 2013 John Wiley Benefits of Education Copyright © 2013 John Wiley Benefits of Education Copyright © 2013 John Wiley 10 Marginal Benefits of Education Copyright © 2013 John Wiley 11 THE OPTIMAL LEVEL OF EDUCATION Copyright © 2013 John Wiley 12 EXTERNALITIES Ø Positive Externalities are benefits received by third parties Ø Ø Negative Externalities are costs imposed on third parties Education is associated with positive externalities Ø benefits to children of educated parents Ø lower crime rates Ø reduced dependence on welfare lower probability of reliance on unemployment Copyright © 2013 John Wiley compensation Ø 13 Private Marginal Benefits vs Social Marginal Benefits Ø Ø Private Marginal Benefits are marginal benefits that accrue only to individual decision makers Social Marginal Benefits are marginal benefits that accrue to society as a whole MBsocial = MBprivate + External Benefits Copyright © 2013 John Wiley 14 Positive externalities of education Copyright © 2013 John Wiley 15 Why Is Education Publicly Provided? Because the optimal private level of educational attainment is lower than the socially optimal level, many societies provide incentives to encourage people to pursue education Governments subsidize education by: Ø providing free primary and secondary schooling Ø funding low-interest student loan programs Ø providing grants and other financial aid to decrease the private costs of attending college Copyright © 2013 John Wiley 16 Education Spending in the U.S Copyright © 2013 John Wiley 17 Education Outcomes in the U.S Ø Ø Research does not uniformly support the idea that more spending on education generates better student performance Various measures of student performance, including graduation rates and standardized test scores, indicate very little, if any, improvements in student performance since the 1970s Copyright © 2013 John Wiley 18 Education Outcomes in the U.S Copyright © 2013 John Wiley 19 Education Outcomes Copyright © 2013 John Wiley 20 Education Outcomes Copyright © 2013 John Wiley 21 EDUCATION REFORM Ø Ø School Choice Ø Vouchers Ø Charter schools Changes in Teacher’s Pay: A set of school reform proposals that focus on pay levels and pay structures for teachers Copyright © 2013 John Wiley 22 Questions/Discussions Will we improve K-12 education if we increase spending on K-12 education? Why or why not? Using the concept of positive externalities, explain why most students are required to obtain vaccinations before they are allowed to attend public school Copyright â 2013 John Wiley 23 Key Concepts • • • • Human capital Positive externalities Negative externalities Private marginal benefits Social marginal benefits Copyright © 2013 John Wiley 24 ...After studying this chapter, you should be able to: Ø Ø Ø Describe the level and changes in educational attainment over time Describe the costs and benefits of education Define human... Benefits vs Social Marginal Benefits Ø Ø Private Marginal Benefits are marginal benefits that accrue only to individual decision makers Social Marginal Benefits are marginal benefits that accrue to society... is lower than the socially optimal level, many societies provide incentives to encourage people to pursue education Governments subsidize education by: Ø providing free primary and secondary schooling