1. Financing Education in a Climate of Change 10th edition
Vern Brimley, Jr. & Rulon R. Garfield
Power Point Presentation: Lora Knutson, Ph.D.
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2. Chapter 1 The Economics of Education
This multimedia product and its contents are protected under copyright law.
The following are prohibited by law: any public performance or display, including transmission of any image over
a network; preparation of any derivative work, including the extraction, in whole or in part,
of any images; any rental, lease, or lending of the program.
Copyright © Allyn & Bacon 2008
Chapter 1 The Economics of Education

3. Education as Human Capital
Education = Investment in human capital & Investment = Risk
Education is responsible for social and economic development
Capital deteriorates with inactivity
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4. Creation of Wealth and Education
Elements in the creation of wealth (labor, physical capital, technology), are enhanced through education
Educated workers are more productive
All areas of resources are refined through education
Human capital—greater productivity in management
Public sector Private sector
Education
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Human Capital

5. Education: An Important Industry
Education is the country’s largest industry
There is a positive relationship between education and economic growth
Economic philosophies affect fiscal matters and the educational program
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Marx
Keynes
Galbraith
Friedman
Smith
Communist
Government Intervention
Liberal
Conservative
Capitalist

6. A Public Sector Responsibility
Government through taxation produces education services
Private sector organizations respond to consumer demand
Education--a political responsibility at three levels of government through taxation
Federal system-public education designed to produce equity
Private sector Public sector
Taxation
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7. Low end—human effort devoted to essential material goods
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Low end—human effort devoted to essential material goods
High end—human effort devoted to education and nonessential goods and services
As educational services increases, economic productivity and wealth increases
Educational system—result and determinant of social and economic progress
Education produces nonfree services
producer’s good—human capital
consumer’s good—purchaser of education and wants as a consumer

8. Stimulates Economic Growth
Education is important to increases in economic productivity
The scope of educational services are determined by
government officials
voters’ experiences
school community
taxpayers
those with no direct relationship to education interest group
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9. Marginal dollar principle
marginal utility—pleasure or satisfaction consumer achieves
diminishing marginal utility—utility of additional units of a good services decreases as additional units consumed
marginal dollar—dollars better spent for some other goods or services
Point of diminishing returns
additional expenditures yield very little or no additional educational returns
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10. Economic Benefits of Education
range of job opportunities
job security
taxes paid to state
life expectancy
averages earnings
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11. Increasing expenditures and the economy
human capital more important than natural resources in wealth creation
high education development overcomes lack of natural resources
poor education system—lower individual economic productivity
Expenditures benefit individuals and society
social mobility, higher status, increased appreciation for arts and culture, increased participation in democratic process
family, neighborhood, business, society and culture benefit
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12. Noneconomic Benefits of Education
Free democratic society—well-informed and responsible citizens
Schools--source of moral and ethical values
Preservation of nation’s culture and people’s sense of identify
External benefits—justify taxation to finance education
healthier society
more informed electorate
more productive labor force
raised standard of living
enhanced economic growth
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13. Exclusion or free rider principle
exclusion principle—ability of consumer to enjoy exclusively a good or service
free riders—garnering benefits without spending income
Externalities justify ability principle
costs of education paid by all, based on ability to pay
wealthier pay more
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14. Taxation and Education
Benefit system—tax based on benefits received
Ability principle—taxes based on ability to pay
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15. Cost-Quality Relationship to Education
Problems with establishing this relationship
lack a definition of high quality that is measurable and acceptable to all concerned
goals of education vary from time to time and place to place
Research limitations
many variables contribute to student achievement, not just spending
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