How Much Are Students Willing to Pay for an “A” in a Course?

How much money would a student pay to get an “A” in an introductory college course?  I ran an experiment in my introductory undergraduate class yesterday that showed the average student was willing to pay $525.

I frequently give lectures on Supply and Demand, which is a key foundation of economics.  Demand curves, which show how much is bought at every price, are often an abstract concept for many students.  To make the demand curves less abstract I explain to students that running a simple English auction, where the price starts low and goes higher over time, produces a demand curve for any good or service.  I then proceed to run an auction to actually create a demand curve.  During the auction I plot every bid using Excel and a demand curve grows on the screen round by round.

I tell the students up front that all proceeds from the auction benefit a local homeless shelter, provide them with the homeless shelter’s website and show them the donation acknowledgment letter a few classes later.

Yesterday, I auctioned off one “free homework” pass.  The pass enabled the purchaser to skip a single homework assignment and automatically get an “A” on that assignment.  Each homework is a 5 question online quiz.  The online quiz can take at most 15 minutes, but the typical student does the quiz in 4 minutes.  There are about 30 homework assignments in the course and homework counts for 10% of a student’s final grade.

The auction was very exciting this year.  When the economy is in poor shape few students are willing to pay much.  However, when the economy improves students tend to bid quite high.  The winning bid this year was $150, which is quite an increase from the $40 high bid during the depths of the recent recession.

The winning bid is not useful for calculating how much students are willing to pay for an “A” since many of the winners have been quite up-front about why they bid so much money.  They have stated they bid high because the money was going to charity.  However, after talking to many students, almost all the low bidders are not thinking about helping out homeless people, but instead are interested in getting a “free” A.

One hundred and ninety students participated in yesterday’s auction.  The price where half (95 students) were willing to buy the homework pass was about $1.75.  The homework pass comprised 0.333% of their total grade.  If they were willing to pay $1.75 for 0.333% of their grade then it is possible to calculate the price they would pay for 100% of their grade.  The calculation for 100% is $1.75/0.333% = $525.

It is also possible from the auction to calculate the value students put on their time.  On average students take 4 minutes to do the quiz.  My guess is that it takes about 1 minute to log on, navigate to the quiz, read the instructions and check the final score, so buying the homework pass saves the average student about 5 minutes of time.  Since they were willing to pay $1.75 to gain 5 minutes this means they are valuing their time around $21 per hour.  The $21 is a slight over-estimate since students are guaranteed an A with the pass, and are not guaranteed an A when doing the quiz.

I left the lecture wondering,  “Was $525 a lot of money or was it a little for a mark on a student’s transcript that a few years from now no one would ever care about?”