By announcing to raise tuition fees for foreign students only, the government is clearly engaging in price discrimination. The government’s decision has most likely been influenced by the fact that the demand for universities from foreign students is most probably less elastic than the demand from domestic students.
Higher tuition fees will result in lower demand for universities from foreign students but the proportional decline in demand will be less than the proportional increase in tuition fees. Thus, despite fewer international students, the total revenue generated by the government will increase. Were the demand for universities from foreign students more elastic than the demand from domestic students, the government would not have raised tuition fees for international students and may even have opted for an increase in tuition fees for domestic students instead.
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There are several reasons why the demand for universities from foreign students may be less elastic than the demand from domestic students. One reason is that foreign students have limited choices as compared to domestic students due to factors such as limited seats. Another factor may be that international students come from wealthier backgrounds on the average as compared to domestic students, thus, better able to cope with rise in tuition fees. It is also likely that foreign students tend to place higher value on college education in a developed country on the average as compared to domestic students, thus, they are more willing to bear with a rise in tuition.
It is highly likely that the demand for universities from foreign students is less elastic than the demand for universities from domestic students, hence, the government’s decision to engage in price discrimination by raising tuition fees for foreign students only. On a chart, the demand curve that represents demand for universities by foreign students will be steeper than the demand curve that represents demand for universities by domestic students.
