Define Economics

• The study of how individuals and

societies use limited resources to
satisfy unlimited wants.
 Education as Human Capital

• Education = Investment in human capital

& Investment = Risk

• Education is responsible for social and

economic development

• Capital deteriorates with inactivity

 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

Human Capital
• Public sector Private sector

Education
 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
 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
• 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
Economic Benefits of Education

• Benefits
range of job opportunities
job security
taxes paid to state
life expectancy
averages earnings
• 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
 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
• 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
 Taxation and Education
• Benefit system—tax based on benefits
received
• Ability principle—taxes based on ability to
pay
 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