The table below shows the results of a regression where the dependent variable i

Question

The table below shows the results of a regression where the dependent variable if the natural log of each college's or university's number of applications received Determinants of the Number of Applications to Universities and Four-year Colleges log-log functional form: R2-.43 Constant In-state Tuition Out-of-State Tuition State's Median Household Income % Full Professors % Associate Professors % Assistant Professors % of Student in HS Class's Top 10% Graduation Rate School's Budget per Student Number of Other Schools in the State Student/Faculty Ratio % of State's Population between 18 and 24 % of Border States Populations between 18 and 24 Coefficient Standard Error 2.8267 0.0349 0.0465 1.0000 0.0775 0.0954 0.1063 0.0385 0.0993 0.0243 0.4787 1.6111 0.6856 0.1977 4.2570 0.2170 0.3312 0.5543 0.4530 0.0167 0.4969 0.1879 0.3325 0.1418 0.2130 1.0488 0.1954 0.3205 What is the elasticity of applications to price? to income? What kind of a good is a college education: inferior, normal, or luxury (be careful!)? Justify this answer According to the results, besides price what factors can a college manipulate to increase the number of applicants? a. b. c.

Explanation / Answer

Given the functional form is of log-log type, thus the coefficients can be directly interpreted as elasticities.

a) Elasticity of applicants to price= -0.2170 ( the coefficient of in-state tuition can be considered as price of application)

and, the elasticity of income = 0.5543 (the coefficient of state's median household income).

b) Since, the elasticity of income is a positive value less than 1, college education can be interpreted as a normal good. It can't be a luxury good as for luxury goods, elasticity of income is greater than one.

c) To increase the number of applicants, a college can increase its % of full-time professors, % of associate professors and Student/Faculty ratio as the coefficients of all these factors are positive implying a positive relationship with the number of applicants.

Thanks!

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