The price of getting into college is usually measured

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Unformatted text preview: n the shortage at college B, so the “price” to get into college A will rise by more than it will rise at college B. The “price” of getting into college is usually measured in terms of high school academic performance (in other words, GPA and SAT or ACT scores.) The greater the demand to get into a college compared to supply, the higher the GPA and standardized test scores required to get into that college, or the higher the “price” a student must pay in terms of grades. E X A M P L E : Suppose a university charges tuition of $12,000 a year and requires a 3.0 GPA and an SAT score of 1900 or higher for admission. Currently, 7,000 students apply for admission each year and 2,000 are admitted. Time passes and the number of applicants rises to 10,000. We know that a rise in the number of applicants is just another way of saying that demand to attend the university increased. Our study of supply and demand teaches us that if demand rises, tuition will rise too. In other words, tuition might rise to $16,000 a year. Suppose the university chooses not to raise tuition; it maintains tuition at $12,000 a year. Will the standards of admission rise instead? The answer is yes—the university might start requiring a 3.3 GPA and an SAT score of 2000 or higher. Necessary Conditions for a High Income: High Demand, Low Supply As consumers, we are used to paying prices. We pay a price to buy a computer, a soda, or a shirt. We sometimes receive prices, too. As a seller of a good, you receive the price that the buyer pays. Many people do not sell goods; instead, they sell their labor services. The person who works at a fast-food restaurant after school or an attorney at a law firm is selling labor services. The “price” employees receive for what they sell is usually called a wage. A wage, over time, can be referred to as a salary or income. A person who earns a wage of $10 an hour receives a monthly income of $1,600 if he or she works 160 hours a month. 06 (128-153) EMC Chap 06 11/21/05 3:14 PM Page 147 A wage is determined by supply and demand, just as the p...
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