ANSWER B Economics of Education. The issue of education is quite critical. The demand for education by society is high. On the other hand, it is demanded that the schools only charge low tuition fees since schools serve a social function. Thus, more often than not, tuition fee ceilings are imposed to assure students of lower prices for this “commodity”. Two common solutions are proposed to address the likely problem of excess demand for educational services (ES) in the event of a tuition fee ceiling is imposition: (i) operation of public schools (e.g., free public high school); (ii) government subsidy to private education. Find the solutions to the problems below: where: D = demand for educational services S = supply of educational services TF or P = tuition fee or price of education (‘000 pesos) Q = quantity of educational services expressed in ‘000 students availing themselves of such service Suppose we let: S: TF or P = 1 + 0.5 Q D: TF or P = 15 – 2Q a. Solve for the equilibrium price and quantity. b. Price Ceiling. If the government imposes a P 2 thousand tuition fee ceiling, analyze the likely impacts of this price policy: i. How many students are wishing to go to school? ii. What is the actual number of students able to go to school? iii. How many students are unable to go to school? iv. What is the number of students who could formerly afford but they are denied of entry due to quota? v. Suppose we make a preposterous assumption that government has to absorb all students who are unable to go to school: 1. Calculate C/Q, which is the “true” or “social” cost per head of supplying education (reflected in the supply curve) 2. How much is the total cost incurred by the government? vi. Illustrate your solutions on a graph. c. Subsidy. Suppose the government mandates that the schools accept all students seeking acceptance at TF = P 2,000, but the government will subsidize the difference between the private cost of supplying educational services (ES) and tuition fee ceiling. i. Calculate the cost of supplying educational services to students who wish to go to school. ii. How much is the amount of subsidy? iii. Let subsidy be deducted from the cost of supplying ES. Derive the new supply curve. iv. Calculate the new equilibrium TF and quantity of students (resulting from a subsidy). v. Illustrate the impacts of a subsidy (graphical analysis). d. How is the total cost then of fully subsidizing education (i.e., absorbing all those unable to enter due to the ceiling) divided between government and private entities? i. How much is the total cost or ES? ii. How much is the portion of the cost, to be paid by the government? iii. How much is the portion of the cost, to be paid by the private entities?
ANSWER B
Economics of Education. The issue of education is quite critical. The demand for education by society is high.
On the other hand, it is demanded that the schools only charge low tuition fees since schools serve a social
function. Thus, more often than not, tuition fee ceilings are imposed to assure students of lower prices for this
“commodity”. Two common solutions are proposed to address the likely problem of excess demand for
educational services (ES) in the event of a tuition fee ceiling is imposition: (i) operation of public schools (e.g.,
free public high school); (ii) government subsidy to private education.
Find the solutions to the problems below:
where:
D = demand for educational services
S = supply of educational services
TF or P = tuition fee or price of education (‘000 pesos)
Q = quantity of educational services expressed in ‘000 students
availing themselves of such service
Suppose we let: S: TF or P = 1 + 0.5 Q
D: TF or P = 15 – 2Q
a. Solve for the
b.
of this price policy:
i. How many students are wishing to go to school?
ii. What is the actual number of students able to go to school?
iii. How many students are unable to go to school?
iv. What is the number of students who could formerly afford but they are denied of entry due
to quota?
v. Suppose we make a preposterous assumption that government has to absorb all students
who are unable to go to school:
1. Calculate C/Q, which is the “true” or “social” cost per head of supplying education
(reflected in the supply curve)
2. How much is the total cost incurred by the government?
vi. Illustrate your solutions on a graph.
c. Subsidy. Suppose the government mandates that the schools accept all students seeking acceptance
at TF = P 2,000, but the government will subsidize the difference between the private cost of
supplying educational services (ES) and tuition fee ceiling.
i. Calculate the cost of supplying educational services to students who wish to go to school.
ii. How much is the amount of subsidy?
iii. Let subsidy be deducted from the cost of supplying ES. Derive the new supply curve.
iv. Calculate the new equilibrium TF and quantity of students (resulting from a subsidy).
v. Illustrate the impacts of a subsidy (graphical analysis).
d. How is the total cost then of fully subsidizing education (i.e., absorbing all those unable to enter due
to the ceiling) divided between government and private entities?
i. How much is the total cost or ES?
ii. How much is the portion of the cost, to be paid by the government?
iii. How much is the portion of the cost, to be paid by the private entities?
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