Problem Set

663 Words Jun 21st, 2012 3 Pages
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Problem Set #2
The US College Enrollment and the “Third Law of Demand” A theorem proposed by Professors Alchian and Allen in their text, University Economics (1964) has had several rebirths of interest in the literature. The so-called “third law of demand,” or “relative price theorem,” holds that a fixed cost added to a good of varying quality causes the consumer to prefer the category considered of higher quality to the lower.
Recently a number of studies, keeping this theorem in mind have looked into a relationship between the ratio of public to private enrollment and unemployment in cross-sectional as well as in time series data. Part of the full cost of participating in higher education is foregone employment income. In their
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Tables 2 and 3 show a clear distinction between the two genders.
Table 2
Dependent Variable: Enrollment Ratio for Males
(t values in Parentheses)
State Level Data

Repressors Coefficient Estimates
CONSTANT 9.032
(1.196)
UNEMPLOYMENT 0.8753
(0.539)
UNEMPLOYMENT SQUARED 0.0l0
(0.409)
INCOME -0.00008
-(0.354)
FINANCIAL AID -0.1065**
-(1.618)
TUITION RATIO -5.4489
-(0.565)
POPULATION -0.0029*
-(1.881)
N= 51, R2 =0.1503 ,F =1.297
Table 3
Dependent Variable: Enrollment Ratio for Males and Females
(t values in Parentheses)
State Level Data

Repressors Coefficient Estimates
Females Males
CONSTANT -286.542 9.032
-(1.210) (1.196)
UNEMPLOYMENT 99.510* 0.8753
(1.956) (0.539)
UNEMPLOYMENT SQUARED -1.187* 0.010
-(1.491) (0.409)
INCOME 0.01515** -0.10008
(2.240) -(0.354)
FINANCIAL AID -4.4702** -0.1065*
-(2.165) -(1.618)
TUITION RATIO -114.185 -5.4489
-(0.378) -(0.565)
POPULATION -0.0636 -0.0029*
-(1.296) -(1.881)
N 51 51
R2 0.2171 0.1503
F 2.034 1.297
**0.05 level of significance
* 0.01 level of significance

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