Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. (a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy.

Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. (a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter27: Markets And Government

Section: Chapter Questions

Problem 12E

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Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education.(a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy.(b) Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to the students enrolled…
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. (a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy. Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to the students…
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education.(a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy.(b) Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to the students enrolled…
Most countries today have subsidised the provision of education. Consider an imaginary country. Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. (a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy. (b) Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to the students…
3. How does the optimal size of the subsidy for education vary with the size of the (positive) consumption externality? Justify your answer graphically.
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education.(a) Depict, with the help of a figure, the initial market for tertiary education inGondolin, assume that: 1) education was left to the competitive free market; 2)the marginal private benefit is equal to the marginal social benefit; 3) themarginal private cost is equal to the marginal social cost. Now describe, usingthe help of the figure, the effect of the government subsidy on the price andquantity traded of tertiary education, where the X axis of the figure should bethe quantity of students enrolled in tertiary education. You do not need to useactual numbers – focus on the direction of change in price and quantity tradedcaused by the subsidy.(b) Identify the area of the figure you drew in (a) that depicts the total size of thesubsidy paid by the government to the students enrolled in…
Policymakers realize that, although education creates a positive benefit for those who obtain it, it also creates external benefits for the community where the educated individual resides. The graph depicts the marginal social cost (MSC) and the marginal social benefit (MSB) associated with education. On the graph, move the point, P, to the point representing the optimal level of education. Dollars (thousands) 100 90 80 70 60 50 40 30 20 10 0 0 2 4 MSC MSB 6 8 10 12 14 16 18 20 22 Years of schooling optimal schooling: 14 What is the socially optimal number of years of schooling for each citizen? years
The figure below shows the market for higher education. The market demand curve for higher education reflects only the marginal private benefit (MPB) that individuals receive. Since this is a market with positive externalities, suppose the government provides a subsidy to consumers of higher education (students) that is equal to the marginal social benefit (MSB) minus the marginal private benefit (MPB), in this case, $8, 000 per student. With the subsidy, the demand curve will shift and become the same as the marginal social benefit (MSB) curve. Move the demand curve below to illustrate this shift. Be sure to take the exact size of the subsidy into account. Precise answers are required. Provide your answer below: 18 16 14 S(MPC) 10 -8 O Market Equilibrium (800,8) Social Equilibrium (800,8) -6 -4- 2- D(MPB) 16001800 1000 1200 Quantity (in thousands of college degrees) -200 0 200 400 600 800 1400 -2 Price (in thousands of $)
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2)the marginal private benefit is equal to the marginal social benefit; 3) themarginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy.
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education ADDITIONAL INFORMATION Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy. (b) Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to…
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. The original assumption for Gondolin stated that the marginal private benefit is equal to the marginal social benefit. Now instead assume that the marginal social benefit of tertiary education is greater than the marginal private benefit. That is, assume there is a positive externality associated with having a tertiary education. Draw this in a new figure. Is the deadweight loss from the subsidy increased or decreased with the introduction of the positive externality? Why?
The table below describes the market for higher education. Higher education confers positive externalities on society, and so the private+social marginal benefits are higher than the private marginal benefits. 2 Quantity 10,000 11,000 12,000 13,000 14,000 Calculate the value of the subsidy that society would need to allocate to higher education in order to achieve the social equilibrium. Express your answer without units (i.e., if your answer is "$500", type "500" in the answer box). Type your answer.... # JOE 3 E W 5 X D 16 20 F3 C $ 4 Private marginal benefits $80,000 $75,000 $70,000 $65,000 $60,000 888 FA R F V % 5 T F5 6 MacBook Air B F6 Y Private+ social marginal benefits $90,000 $85,000 $80,000 $75,000 $70,000 & 7 H F7 tv NA U N * 8 J F8 1 ( 9 K M Marginal costs $70,000 $75,000 $80,000 $85,000 $90,000 O .O. L Aa P zoom