Sarah+Jang-+3rd+Exam

=Why do students go to KIS? = Application of Simple Economic Principles on Students' Attendance

After spending four years of high school at an expensive private school, Sarah started to wonder just why the heck anyone would attend her school. Having paid almost 120,000,000won during the four years of high school, Sarah decided that it's about time to understand why anyone would pay so much for their education.

 1. Welcome To the World of Oligopoly
 Let's start off with an answer to a simple question: What is a an oligopoly? Oligopoly is a market form in which a market or an industry is dominated by a small number of sellers.

How, then, is KIS a part of an oligopoly? For that answer, look at the table below.  Being non-government funded, or "private" academic institutions, international schools naturally enter the market called an "oligopoly." In this market of international schools, different international schools sell similar products-- international education in English.
 * **Name of School ** || **Number of Students ** || **Yearly Tuition ** || *** ** ||
 * SFS || 1,200 || 25,000,000 won ||  ||
 * YISS || 1,000 || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">25,000,000 won ||  ||
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">SIS || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">1,000 || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">25,000,000 won ||  ||
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">KIS || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">1,000 || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">30,000,000 won ||  ||
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">GSIS || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">500 || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">25,000,000 won ||  ||
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">DCS || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">approx. 500 || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">30,000,000 won || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> scheduled to open 2010.09 ||
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">ISS || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">approx.2,000 || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">30,000,000 won || <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">scheduled to open 2010.09 ||

Now, let's find out some of the characteristics an oligopoly holds. In an oligopoly, few firms have similar or identical products. The reason that there are only "few firms" in the market is because there are barriers to entry. In the case of international schools, the barriers are a government's attempt to restrict the numbers of international schools and the difficulty in opening an international school -- i.e. you need large amount of money from the start and must get recognized internationally.

Here's the interesting part. As you know, an oligopoly is a market monopoly and perfect competition. When it works as a group, it goes towards monopoly and if it competes, it works as a monopolistic competition. Then, will the short run characteristics of a monopolistic competition also apply in this market of international schools?

The answer to this question is //YES//. One of the short term characteristics in the monopolistically competitive market is that short-run economic profits encourage new firms to enter the market. This leads to an Increase in the number of products offered. Sounds familiar? If it doesn't, look at the table of international schools above AGAIN! According to the recent data, "DCS" and "ISS," two other international schools are scheduled to open in year 2010.

This shows that the market is following the patterns of a monopolistic competition.

<span style="color: #ffc700; font-family: 'Trebuchet MS',Helvetica,sans-serif;">2. How much do you want KIS education? –– Elasticity of the Demand
<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> Again, let's start by defining the economic terms. An elasticity measures how much consumers respond to changes (size of the change). In this case, I'll be focusing on the price elasticity of demand or the measurement of how much the quantity demanded responds to a change in price --how willing consumers are to move away from the good as its price rises.

According to basic economic principles, when the elasticity is equal to zero, the demand is perfectly inelastic and is a vertical line. On the other hand, when the elasticity is infinite, the demand is perfectly elastic and is a horizontal line.



<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">However, most of the students' demands for international schools are not so extreme. In most cases, their demand is elastic. Therefore, the quantity demanded responds substantially to changes in the price. Now, let's look at some of the factors that determine the price elasticity of demand.

1. Availability of close substitutes- the closer the substitutes are, more elastic the demand is. -Are there substitutes to international schools? Well, it really depends on the family's situation, but most of the time students may go to Korean public schools or even go to dormitory schools in America.

2. Necessities vs Luxuries -Unlike luxuries, necessities such as water have inelastic demands. However, attending KIS is definitely a luxury.

Then, is attending KIS elastic or inelastic? The answer to that question is...well... //elastic.//

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Remember that lesson we had in the beginning of the year? "The cost of something is what you give up to get it." This simple analogy applies yet again in this market. In order to pay for the school tuition, you give up other luxuries that you might be able to buy and enjoy.

The reason we risk this opportunity cost, however, is because there are "//incentives//." Growing up in Korea, --where education is stressed all the time-- receiving a "global education" might seem necessary for future success. This idea that in order for succeed in future you need to receive a better, and so called "global" education is the main incentive in choosing international schools. Going to international schools provide an opportunity for students to receive education in English while being able to live in Korea with their parents.

The question, then, becomes whether or not the opportunity cost and the incentives are worth the tuition.