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2) [18 points] In the country of Bandalong= getting a university education improves a person's earnings. In addition= it benets the entire economy as growth
2) [18 points] In the country of Bandalong= getting a university education improves a person's earnings. In addition= it benets the entire economy as growth rates increase. The market for university education is perfectly competitive. For this entire question, for simplicity, you can assume an upward sloping Market Supply curve for a university education (i.e. we are always in the short run). The price of university tuition is determined in the market. To keep its campaign promise of making university edu 'ation more aorclable= the government introduced a new program where a evcry university student gets a $5000 per year subsidy. 2a) [6 points] The opposition claims that the education subsidy is too high right now and is actually reducing societal wellbeing [or surplus). Agree, Disagree or It Depends? Explain your reasoning. A diagram by itself is not enough5 you must explain your reasoning. 2b) [6 points] A bill passcs which reduces the subsidy given to students to $4000 a year. Claim: Reducing the subsidy would increase tuition prices. Agree, Disagree or It Depends? Remember: we are assuming onlj,r shortrun analysis. Explain your reasoning. A diagram by itself is not enough, you must explain your reasoning. 2c) [6 points] In order to reduce government expenditures while still keeping its promise of an affordable university education, the government replaces the subsidy with a price ceiling. Claim: The price ceiling will increase efficiency in the economy. Agree, Disagree or It Depends? Remember: we are assuming only short-run analysis. Explain your reasoning. A diagram by itself is not enough, you must explain your reasoning
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