Summary of demand and supply considerations of education, Microeconomics

Summary of Demand and Supply Considerations of Education

A study of supply and demand considerations in education helps in understanding four major issues and concerns of an educational system, viz. efficiency, equity, regional parity and quality. Needs, aspirations and expectations of parents/wards from education is referred to as private demand. If they have the capacity to pay for this, then it is known as effective demand. Needs, policy expectations and national/regional aspirations from education by a state/government/society is known as social demand. There is a possibility of divergence between private and social demands for education as is the case in India in regard to literacy and primary education.

Costs of education refer to the money value of material and human resources needed to provide education. Money paid for providing/acquiring education is known as direct costs. Time spent for acquiring education which otherwise could have been used to earn money elsewhere is known as opportunity cost. What people get back from education is known as benefits of education. If it is in the form of earnings it is known as monetary returns or direct benefits. If it is in the form of knowledge, awareness, a positive frame of mind, status in society, then it is known as non-monetary returns or indirect benefits. If the benefit is to an individual it is private benefit. If it is to a society it is known as social benefit. A literate, educated population is an asset to a democracy.

It is the social benefit from education. Demand and supply for education are guided by several considerations. They vary across private and social demands. Study of demand and supply is significant for an economy which is faced with scarcity of resources. Age, gender, region, caste- habits, and ability to pay are some significant variables which determine private demand for education. Equity, economies of scale, externalities and pursuit of excellence are variables which are significant in the determination of social demand for education.


There is a difference between cost of education and expenditure for education. While cost refer to money value of resources needed to produce a good or a service, expenditure refer to the money value of resources needed to acquire a good or a service. A systematic understanding of wastage and stagnation and measures to reduce them is essential for boosting the efficiency of educational expenditures.


Life-time earnings of an educated person constitutes his direct benefits from education. Skills developed in training or extension programmes that step up productivity is another illustration of direct benefits. Development of attitudes favourable for savings, small family, modernization, development response, rational outlook, scientific temper, and democratic behaviour are instances of indirect benefits. Techniques like Net Present Value (NPV) and Internal Rates of Returns (IRR) are used to calculate rates of return to different levels of education. Social rates of return in developing countries are higher than those for developed countries.

Posted Date: 12/17/2012 4:54:29 AM | Location : United States







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