Market Failures and the MBA

I’m one week into a graduate level economics class, and my professor published this announcement.

Most of the work is via the software and my role is to guide you and to work on enhancing your intuition via the discussion. Basically the software is your teacher and every student has a private teacher, the software.

This is an example of a market failure. It is an economics problem (ironically) in which the market fails to efficiently allocate resources.

A few years ago, I bought a book at Barnes and Noble called Economics Demystified. I paid the full retail price of $22. It was well worth the price as it made me $22 worth more interesting at cocktail parties.

Tuition and the “software” to which my professor alludes (an eBook) totals $2,205. That makes the class 10,064% more expensive than the Economics Demystified book. 94.6% of that additional cost is the result of including the professor to “guide you and work on enhancing your intuition”.

That seems like a steep premium, and I wouldn’t pay it except for another economics concept, Market Power. Because people with MBA degrees tend to have more prosperous careers, I should have a healthy return on investment for the additional cost. The university exercises undue influence on the market (just like the ebook text book publisher), so they are able to charge this higher price.

It’s unfortunate. Most of my professors have been very strong and dedicated to helping students. Their assistance has been worth the extra $2,095 per class.

Surely the invisible hand of the market could more efficiently allocate those resources.

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