Econ 321: Economics of Reed College
Fall 2009
Mid-Term Exam
Due: 6pm, Wednesday, October 28

Instructions:

1. This exam is open book. You may use any class notes, readings, or other materials that you wish.

2. You may not communicate about the exam with anyone other than the instructors before it is due.

3. Good answers will be well supported with references to and/or quotations from class readings or other published materials. Cite your sources properly using the style described here.

4. You should send your answers to Jeff and Jon prior to class on October 28. They should be in .doc or .pdf format.

5. If you have any questions about the scope or focus of any question, clarify by email.

Question #1: The merits of merit aid

At the college level: Discuss how a college's financial-aid policy is affected by its mission and its market. Based on these considerations, what reasons compel some colleges to offer large numbers of non-need-based aid awards? To what kinds of students would these awards be offered (and would this differ among colleges with different characteristics)?

At the "industry" level: Some have argued that ubiquitous merit aid is detrimental to the overall mission of American higher education. Others argue that it may have beneficial effects. Discuss the arguments on both sides of this debate. Which do you find more convincing?

Question #2: Effects on admission and the student body

Suppose that Reed receives a very large gift to its endowment. Consider each of the following uses and how it would be likely to affect the admission process at Reed, the student body that enrolls, and (if relevant) other aspects of the college. Do you think this change would be beneficial in and of itself? What might be alternative beneficial uses of these funds? Do you think the expenditures below would be more beneficial than the alternative uses of the funds?

a. A $5000 decrease in Reed's tuition.
b. A merit-based grant program giving full scholarships to up to 10 high-ability, no-need matriculating students each year.
c. The establishment of a full-need, need-blind admission policy for domestic students.