Question

Seved Suppose the following data represent the market demand for college education: Tuition (per year) $1,000 $2,000$3,000 $4,000 $5,000 $6,000$7,000$8,000|| Enrollment demanded (in millions per year) 8 7 6 5 4 3 2 (a) If tuition is set at $3,000, how many students will enroll? Instructions: Enter your response to the nearest whole number. million students Now suppose that society gets an external benefit of $1,000 for every enrolled student. (b) Draw the social and market demand curves for this situation on the graph below. Instructions: Use the tools provided to draw the Market Demand curve (Market Demand) and Social Demand curve (Social Demand) Plot only the endpoints of each line. College Market ition (Dollars per year) of 26 98 Next >

Answer 1

a) According to the table,

when tuition is $3,000 per year then 6 million students would want to get enrolled.

Thus, if tuition is set at $3,000, 6 million students will enroll.

b)

External benefit of $1,000 for every enrolled student.

This implies that enrollment is creating positive externality.

In such case, social demand curve will be on the right of private demand curve.

Tuition (dollars per year) Social Demand Market Demand Enrollment (millions per year)

c)

According to the above graph

when tuition fees is $3,000, the social demand is enrollment of 7 million students.

Thus, the socially optimal level of enrollment at the same tuition price of $3,000 is 7 million students.

d)

The subsidy is equal to the external benefit which is equal to $1000 for every enrolled students.

So, Ans - $1000 per student