ECONOMICS OF EDUCATION: What is the usefulness of economics in education?


Economics & Economics of Education

1 a iii). Analyze the importance of economics in education and its usefulness in society.

Why economics of education?

Education uses resources and is, therefore, costly to both individuals and societies. As a result, economists of education would like to acquaint themselves as to the magnitude of costs and benefits that may be associated with investment decisions on education and training. To achieve this, education must be brought under economic tools of analysis just like it happens with other sectors of the economy, e.g. energy, agriculture, transport etc.


  1. Economics of education can be defined as the application of economic tools of analysis to education.
  2. Economics of education is basically concerned with how educational objectives can be met out of scarce resources.
  3. Economics of Education is the study of how man and society choose with or without increasing the use of money to employ scarce productive resources to produce various types of training, skills , mind and character especially by formal schooling overtime and distribute them now and in the future among various people and groups in society. Colines E. (1980)

Practical uses of economics of education to policy members

  • Education uses resources: it incurs direct and indirect costs. Therefore, it enables the policymakers to know the magnitude of the costs and benefits that may be associated with investment decisions on education and training.
  • It will enable them to understand how officially these resource as can be utilized/distributed equitably to meet educational objectives.
  • It will enable them to evaluate or assess the efficiency of various stages of education.
  • It will enable them to know how to scarce resources can be produced /or mobilized to be utilized within the education section.

Dichotomization of Education as a Good:

There are two major dichotomies of education as a good.

  1. Education as both a Producer and Consumption Good:

A good used by a consumer to satisfy his wants is a consumer’s good and a good used in the process of producing other goods is a producer’s good.

Education has both investment and consumption aspects.  Education is regarded as consumption good when the resulting learning experiences, qualities and outcomes are for immediate satisfaction. As a consumer good, education is sought as an end product in itself or for present enjoyment.

On the other hand, if education is used as a means towards the attainment of other ends or for further productive purposes in future, it is considered as a producer or investment good. Education as an investment involves present sacrifices, e.g. foregoing present consumption or satisfaction for the sake of future benefits (both monetary and non monetary). Education as an investment involves acquisition of some useful abilities which have some social and economic value. Education investments involve some present sacrifice by parents, community or country in form of foregone present consumption or alternative investments.

    2. Education as both a Public and Private Good:

Education can also be classified as a Quasi-Public good (semi-public good). This is because although educational investments result in benefit that accrues exclusively to the individual’s investing in it (i.e. private benefits) it at the same time yields benefits which cannot be enjoyed by those individuals or families alone but which spill over to benefit society at large (i.e. social benefits). These social benefits (also referred to as neighborhood effects or externalities) qualify education to be a public good as well.

In essence, the consumption of education by an individual or group may not necessarily reuse its supply to others and once provided it ends up benefiting the whole society.

For many years, education was viewed more as a consumption rather than an investment. Economists and educationists did not pay much attention to the role of education in the production process. It was not until 1960 that one scholar, Theodore Schultz, came up with the idea of investment in human capital. His thesis was that education was not to be viewed simply as a form of consumption but rather a productive investment.


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