Question

a) Draw a demand curve to show how college enrollment can change with college tuition and explain it. (Minimum 50 words)

b) Examine with respect to the demand for college enrollment, which of the following would cause (1) movement along the demand curve or (2) a shift of the demand curve and explain why?

i).       An increase in incomes.

ii).      Lower tuition.

iii).     An increase in textbook prices.

c) Using supply demand analysis show what will be the change in equilibrium college tuition and college enrollment when there is an increase in income as mentioned in i).

Answer 1

Ques A ) College enrolments are a function of college tuition. They have a negative relation and thus there is a downward sloping curve. With an increase in college tuition, the enrolments will reduce.

Ques B)

i) An increase in income : This will lead to an outwards, i.e. a rightward shift in the demand curve as the people will have more income to spend on education. So, people who were earlier not spending on education will also start to spend on education. This will bring an expansion of demand.

An increase in income is a third factor to the demand. It is a constraint that has been expanded.

ii) Lower Tuition : Lowering tuition will increase the quantity demanded of enrolments as existing consumers will like to increase the spend on education.

Lowering the tuition leads to a movement along the demand curve.

iii) An increase in textbook prices : As it is an external factor, it will lead to an internal shift/ leftwards shift in the demand curve. Textbooks are supplement goods. Supplement goods directly affect the demand of good at hand.

An increase in prices of textbooks will lead to the reduction in demand.

Ques C) Increase in income causes outwards shift in demand. The demand curve shift from DD to D’D’. At the prevailing enrolment costs, the supply being constant(SS), the equilibrium will shift from E to E1. Initially, the demand curve shift will change demand from E to D2. Given fixed supply, Eventually, the college will also rise its tuition fee.

Thus the quantity demanded will move along the new demand curve upwards to the new equilibrium point E1 where SS curve cuts the new D’D’ curve.