Problem Set
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 socalled “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 crosssectional as well as in time series data. Part of the full cost of participating in higher education is foregone employment income. In their …show more content…
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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