Midterm Exam
Due: Wednesday, November 2
Instructions:
1. This exam is open book. You may use any class notes, readings, or other materials that you wish.
2. You may not communicate about the exam with anyone other than the instructors before it is due.
3. Good answers will be well supported with references to and/or quotations from class readings or other published materials. Unsupported opinions have their place, but arguments based on evidence are likely to be more persuasive in this setting. Cite your sources properly using the style described .
4. You should send your answers to Jeff and Jon prior to class on November 2. They should be in .doc, .docx, or .pdf format.
5. If you have any questions about the scope or focus of any question, clarify by email.
Questions
1. Some economists have made the following argument: "An increase in federal financial aid will not increase access to private higher education because schools will simply raise tuition as demand increases." Assess this argument using available evidence. If you find the available evidence unsatisfactory, how would/could you go about obtaining the evidence that you need?
2. As you know, ÈËÆÞÓÕ»ó is currently embarking on a search for a new president. Put yourself in the place of a candidate who is interviewing for that position. One of the members of the interview team asks the following question: "Given the difficult economic times, as President of ÈËÆÞÓÕ»ó College, what initiatives might you propose to maintain or enhance ÈËÆÞÓÕ»ó's competitiveness in the marketplace?" How would you respond? (Note: Because this is an exam and not an actual interview, you are expected to cite appropriate evidence in your answer.)
3. Suppose that in 2013, wealthy ÈËÆÞÓÕ»ó alumnus Merrill Merritt offers to donate $20 million to ÈËÆÞÓÕ»ó with the stipulation that the money is to be used to support a new program of Merritt Scholarships to help ÈËÆÞÓÕ»ó attract the best and brightest high school grads, regardless of their financial need. Mr. Merritt believes that ÈËÆÞÓÕ»ó's high tuition is driving away prospective upper-middle-class students and that targeted non-need-based aid is the best solution. His donation, if accepted, would yield $1 million per year in funds for the college. A hot debate ensues in the ÈËÆÞÓÕ»ó community. Selected quotes are below:
- “Merit aid goes against everything that ÈËÆÞÓÕ»ó College stands for. Our financial aid mission has always been and should always be to provide a quality education to outstanding students who could not otherwise afford it. The pernicious spread of merit aid among liberal-arts colleges undermines the access of less fortunate students to quality education. I passionately urge ÈËÆÞÓÕ»ó College to resist joining this regrettable trend.”
- “Most of our rivals now offer merit aid. The choice is quite simple: we either begin to offer scholarships to outstanding students with no need, or we will continue to see erosion in our ability to attract the best of the full-paying student population. This will force us to choose between lower quality full-paying students and paying even more financial aid to fill our class with those getting need-based aid.”
- “Economic efficiency is promoted when resources are paid their marginal products. Outstanding students bring an extraordinary vitality to the ÈËÆÞÓÕ»ó classroom. Everyone—faculty, fellow students, and the institution—gains from this. Merit aid is a natural and efficient way of compensating these students for their service to the institution’s educational mission.”
- “The operations of ÈËÆÞÓÕ»ó College must be financially self-supporting. There must be a problem with the pricing of our product or with its quality if we must resort to buying students. I would prefer to see a slower increase in our tuition level.”
As the president of the college, you must make a recommendation to the Board of Trustees on this contentious issue. Write a short position paper summarizing your arguments and supporting them with whatever available evidence you think is relevant.