Over the postwar period in most developed countries, the university participation rate has risen steadily to well over 30 percent, although there remain differences between countries. Students from lower income families have lower participation rates than those from higher income families.

The article provides an economic analysis of these patterns of participation using a model of the market for undergraduate education. The demand for undergraduate education is analyzed using a human capital model in which households choose whether to apply to university in seeking to maximize the present value of lifetime income. The supply of undergraduate education is analyzed using a model of universities as non-profit, multi-product organizations that seek to maximize the quality of undergraduate education produced and the quality of research published by faculty members. The production of undergraduate education is a customer-input technology in which the quality of the students, through peer effects, influences the quality of education produced. The long-run supply function depends upon government policies to finance universities. The market equilibrium depends upon government policy on tuition and the availability of qualified applicants to universities. For illustrative purposes, data and public policy from the province of Ontario, Canada, are presented and analyzed.

The article argues that the economic analysis of participation rates has overemphasized demand side variables; and that more attention should be paid to the supply decisions of universities and to government policies regarding the financing of universities and the setting of tuition levels.