This paper provides a clarification of two factors--the differences in pupil need (as reflected by the proportion of disadvantaged or handicapped pupils in a district) and the differences in the prices of school inputs across districts--that affects the cost of educational services and a conceptual framework that may be useful in making welfare comparisons across school districts. Section 1 provides a clarification of what is meant by the concept of an educational price differential. Section 2 deals with the impact of wealth disparities on the demand for educational quality and reveals the extent to which variations in the demand for educational quality lead to salary differentials for school personnel. Section 3 examines the sources and nature of the variations in the cost of educational services. Section 4 presents a discussion of the economic theory of index numbers along with some of the problems encountered in the determination of the "true" cost-of-education index. Finally, section 5 clarifies what is required in order to calculate a cost index for educational services. (Author/IRT)