Explicit and Implicit Costs of Education: Context Rich Problem
This context rich problem asks students to apply economic concepts to a real-world issue. Not only has the cost of higher education been regularly discussed in the news, but it is also a topic to which students can directly relate and observe how economics concepts apply in every day decisions.
Students are asked to write a letter to a roommate who is considering whether to return to the university next semester. In the letter, the student is asked to explain to the roommate the expected benefits and costs of continuing with their education. Specifically, they are asked to specify both the explicit and implicit costs.
Context for Use
Description and Teaching Materials
Handout with a Template for the Table(s) (Microsoft Word 2007 (.docx) 16kB May13 13)
Teaching Notes and Tips
- If completed inside class, the instructor will need to provide some of the information relevant to their College and location.
- An alternative is to have the student write the letter to a sibling who is considering whether to attend college after graduation.
- You may allow the students to assume a fulltime minimum wage job would be an appropriate estimate of the implicit costs.
- Given that many students work while going to school, the students could use their current employment path as a guideline for the implicit costs rather than the suggested minimum wage job mentioned above.
- More advanced versions of the assignment could ask for more specific details about the benefits of the education, specifically examining the expected/average salary of the roommate's chosen major.
- For an upper-level class, students could be asked to use or discuss the net present value of the earnings in their cost/benefit analysis. Furthermore, students could elaborate on the cost of incurring debt to pay for their education.
- Students could be asked to use the College Risk Report website to make some of the more advanced comparisons (see resources below).
References and Resources
Pew Research Center, "Is College Worth It?" May 15, 2011.
Kapur, Saranya, "Is Your College Degree Worth It? Find Out" Forbes, April 11, 2013. http://www.forbes.com/sites/saranyakapur/2013/04/11/is-your-college-degree-worth-it-find-out/
The "College Risk Report" is discussed in the Forbes article above. It provides an interactive site for students to make comparisons http://www.collegeriskreport.com/. It also provides links to an extensive Reading List on the topic.