Education

Question 1

The effective funding of higher education is a significant issue facing most advanced economies. Providing education is a highly expensive activity, though the benefits are hard to quantify.

  1. To what extent is higher education a good example of a merit good?
  2. Using a diagram, show the effects of subsidising university places.
  3. Evaluate the case for students paying the full cost of their university tuition during the duration of their course

Question 2

A government has recently conducted research into the long-term benefits of education. It estimates that, if students paid the full fees, the following would chose to go to university. It is also estimated that the real net private benefit to students is 20% more than they realise and that the benefits to society in general are a further 30% higher.

Tuition fees per year (£)  Demand for places (000) Supply of places (000)
14,000 100 300
12,000 150 250
10,000 200 200
8,000 250 150
6,000 300 100
4,000 350 50
2,000 400 0

Use graph paper to:

  1. Plot the market demand and supply and show the free ‘market’ price (fee) and quantity (of places)

  2. Calculate the ‘socially optimal level of demand’ at each price level, and plot this on the graph.

  3. Show the new socially optimal number of students and the fee needed to get this number going into university.

  4. Evaluate methods to achieve the socially optimal level of higher education.