Case Study: Battling the Price of Education

By Bruce Cheesman

Malaysian engineer Tony Yap still hasn’t worked out to tell his youngest daughter, Jasmine, that she won’t be studying in Australia next year.

The all-conquering Australian dollar has made it impossible to send her to study in Victoria. Her two elder siblings have been studying in Australia for the past two years.

‘The Aussie dollar is so strong that I can hardly afford to keep my other two children in Australia, let alone send my youngest. It is a tragedy as she is the brightest of the lot,’ says Yap.


‘She will just have to go to university here. I can’t even afford to send her to the local campus of the two Australian universities that have branches in Malaysia.’

There are many Malaysian parents, mostly Chinese, in a similar position to Yap. Education has been Australia’s brightest export to Malaysia for the past five years.

About 15,000 Malaysians are currently studying in Australia, and another 10,000 are taking courses at branches of Australian tertiary education in Malaysia.

Instead of going to the United Kingdom and the United States, traditionally the preferred choices for overseas study, many Malaysians opted for Australia because the weak dollar made the Australian education sector competitive.

Much of the demand in South-East Asia for Australian education visas has come from Malaysia and Thailand. That market is now under threat. Although the strong Aussie dollar has not yet been reflected in a decline in the number of visas issues, Australian education authorities admit that there is anecdotal evidence to suggest the figures will plunge if the dollar keeps appreciating against the ringgit.

The ringgit is the only South-East Asian currency directly pegged to the US dollar. The ringgit has crashed from about 1.9 against the $A about 2.8. Most of the damage has been done in the past six months.

The only upside to the surging Australian dollar is that it is bringing in many Australian tourists.

‘I am picking up so many Aussie passengers,’ say taxi driver Jumal Mohamed.

Australians are now taking advantage of the dollar, which currently goes further than anywhere else in the region, to come to Malaysia in their droves. The number of Australians visiting Malaysia was up by two-thirds in the last three months of 2003.

Australian Financial Review
13 January 2003

Questions

1.      Keeping in mind the principle of individual decision-making, explain why Jasmine Yap will not be studying in Australia this year.

2.      Use a production possibility frontier model to explain why Tony Yap is prepared to send so much money on education his daughters.

3.      What was the important Australian export to Malaysia mentioned in the article? What was the Malaysian export to Australia that has been growing since the appreciation of the Australian dollar? Using the concept of comparative advantage, explain why the two countries trade.

4.      Consider whether Australia has an absolute advantage in education services.

5.      Does the article give us any indication of the price elasticity of demand for degrees? If so what does it suggest?

 

Case Study: Battling the Price of Education