Question

Imagine a perfectly competitive market for postgraduate schooling. It has been discovered that countries who have a population with more postgraduate educated people have a decreased criminal rate.

A) Make a graph of the market demand and supply for postgraduate schooling. Tag the market result as well as the social optimal result. Explain the graph.

B) Are both the market result and socially optimal result identical? Further explain this.

C) IF the above answer is no - explain 2 feasible answers for reaching the socially efficient result. IF the above is yes - explain 2 feasible answers that could result in the market result being separate to the social efficient result.

Answer 1

Market outcome: P1,Q1 (where private demand cuts supply curve)

Socially efficient outcome: P2,Q2 (where social demand curve cuts supply curve)

B) No

Market outcome is less than socially efficient outcome

This is because market outcome does not take into account positive external benefits imposed on the soceity

C)

Two ways to reach social outcome:

1. Provide subsidy to private players to increase rates of post graduate education levels

2. Public provision of education at subsidzed rates

These will help increase demand for education and increase outcome to socially optimal level.