Consider the education market of a country where the demand equation for education is

given by P = 14 - 12Q and the supply equation of education is given by P = 2 + Q,

where P is the price measured in thousand dollars and Q is the quantity of students

measured in millions of students.

(a) If there is no government involvement and the education market is competitive,

determine the equilibrium student enrollment and price of education. Use an

education market diagram to explain your answers.

(10 marks)

(b) If education is able to generate positive externality, is the equilibrium quantity

in answer in (a) efficient? Discuss.

(5 marks)

(c) Assume that the external benefit of education is $6000. If the government

provides a subsidy of $6,000 for every students, determine the student

enrollment and price of education after the subsidy. Explain your answers with

the aid of a diagram.

(10 marks)