South-Western College Publishing - Economics  
How Much Does it Really Cost to Go to School in Hong Kong?
Topic Scarcity, Choice and Opportunity Cost ; Production and Costs
Key Words Hong Kong, education, debentures, price, demand, supply
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Reference ID: A164945850
News Story As spaces in international schools in Hong Kong have become more and more limited, schools are resorting to a different rationing technique: allowing people to pay for the seats.

Over and above the tuition that must be paid to the private school, the school system has begun selling debentures to help pay for maintenance and upkeep of the school system. The price for a debenture from Hong Kong International School has reached about US$600,000, and demand continues to increase for such bonds.

Why is demand so high? Because while not all schools will admit this, schools give preference to children whose parents own one of the debentures. Purchasing one of these bonds may help parents get their children into some of the best schools in Hong Kong (how they treat debentures as part of the admissions process varies from school to school). What’s more, it’s not clear that individuals can resell the debentures if they wish; some schools allow it, with the family and school sharing the profits. Firms have begun purchasing these debentures and distributing them to their workers as a means of attracting talent to Hong Kong. And it’s not just the foreign executives living in Hong Kong with their families that are purchasing the debentures; Hong Kong citizens have begun leaving the public school system in favor of the international schools because of their reputation.

While it’s not known what the ratio is between the debenture holders and admitted children into the schools, one thing is clear: in Hong Kong if you have the money to pay for it, you can buy your child a very good education.
Questions
Discussion Questions:
1. Why would families willingly pay up to US$1 million to have their child attend a particular school? Use economic reasoning in your answer.
2. Why do you think that the costs to the U.S. and the costs to Iraq vary so widely if we are talking about an identical event?
3. What kinds of benefits do you think this war has for Iraq? How would you measure those?
Multiple Choice/True False Questions:
1. True/False. The price of a debenture may be considered part of the opportunity cost of attending an international school in Hong Kong.
2. Purchasing the debenture in the hope of having a positive outcome on the admissions process is an example of
  1. Variable cost
  2. Fixed cost
  3. Sunk cost
  4. External cost
3. True/False. As demand continues to increase, the cost of the school debenture will continue to increase.
Source “The $1m Question.” The Economist, June 14, 2007.
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