Most countries today have subsidised the provision of education. We will use the UK as an example country. Let’s say that the UK 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 the UK, assume that:Education was left to the competitive free marketThe marginal private benefit is equal to the marginal social benefitThe 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 in tertiary education in the UK. Who gains and who loses from such a subsidy?

Answered: The marginal private cost is equal to…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.6P

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Most countries today have subsidised the provision of education. We will use the UK as an example country. Let’s say that the UK 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 the UK, assume that:

Education was left to the competitive free market
The marginal private benefit is equal to the marginal social benefit
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 in tertiary education in the UK. Who gains and who loses from such a subsidy?

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