Question

Due to advanced technology, the price of substitute goods for higher education has increased in demand;...

Due to advanced technology, the price of substitute goods for higher education has increased in demand; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply.

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Answer #1

Increase in demand for a substitute good will decrease the demand for higher education, shifting the demand curve for higher education toward left. Supply curve remaining unchanged, this will decrease price and quantity of higher education.

In each graph, price (P) and quantity (Q) of higher education are depicted along vertical and horizontal axes respectively. D0 and S0 are initial demand and supply curves, intersecting at point A. Initial equilibrium price is P0 and quantity is Q0. When demand for higher education decreases, D0 will shift leftward to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

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