Question

Imagine that we live in a country with no public education, so families currently must pay for their children's education, but they can choose from an infinite number of schools as to how much they want to spend (assume more spending is equivalent to better education). Now, assume the government implements public education that is "take it or leave it" (i.e. families can either stop spending their own money and send their kids to public schools, or they can keep spending their own money to send them to private schools, but they can not add extra educational spending on top of the public schools). What does theory suggest will happen to total spending on education?

A. Introducing public education will increase spending on education for children in some families, but also decrease spending on education for some children in other families. Thus, theory does not predict whether total spending will increase or decrease.

B. Introducing public education will absolutely INCREASE total spending on education.

C. There is no theory that can analyze this situation.

D. Introducing public education will absolutely DECREASE total spending on education.

Answer 1

Correct option: A. Introducing public education will increase spending on education for children in some families, but also decrease spending on education for some children in other families. Thus, theory does not predict whether total spending will increase or decrease Reason: With the government offer, some families would continue sending their children to private schools, as they believe the quality of education is better in private schools (as they can afford it too), however some families who were struggling with the educational expenses would reduce their education spending and start sending their children to public schools. So, on the whole, the change in total spending would be ambiguous as it depends on the magnitude of both increase/decreases.