Scott Brown explains why college is less affordable.

How refreshing to see a politician say that more money isn't always the answer for American education. In Wednesday night's Massachusetts debate, GOP Senator Scott Brown had the audacity to suggest that more taxpayer subsidies for college education may simply transfer wealth to collegesand their faculty.

The fun began when Democratic challenger Elizabeth Warren, a law professor at Harvard, attacked Mr. Brown for voting against the umpteenth Senate bill to expand student-loan subsidies. According to the New York Times, Mr. Brown responded that "she makes $350,000 to teach one course" and received a no-interest loan from Harvard. This, he added, is "one of the driving forces behind the high costs of education."

Rising federal subsidies have allowed colleges to raise their prices, pocketing the increased aid that is allegedly intended to help students. According to the College Board, average tuition and fees in the last decade at private schools like Harvard surged a full 2.6% per year faster than the general rate of inflation. Price hikes at public universities have been worserising almost 6% per year faster than the consumer price index.

Like health care and everything else that politicians decide to make "affordable," higher education has become unbearably expensive. Kudos to Mr. Brown for suggesting there may be a better way to make college affordable, perhaps by requiring professors like Ms. Warren to spend more time in the classroom.

Questions:

1. Assume the market for higher education is perfectly competitive. Explain the effect of increased federal higher educationsubsidies(paid to students) on the equilibrium tuition rate.
2. Who is gaining more from this form of subsidy, students or colleges? Explain your answer using the concept of elasticity of demand and supply.
3. Should the federal governmentsubsidizehigher education? Evaluate the effect of asubsidyon the producer surplus and the consumer surplus in the market for higher education.