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The two market diagrams below show the market for public and private colleges. Market for Higher Education (Private Colleges) Market for Higher Education (Public Colleges) Spublic) D. Enrollment (students per semester) Enrollment (students per semester)

How will an increase in state subsidies to public colleges affect the market for public and private colleges? In public colleges:(Click to select In private colleges (Click to select) Demand will shift to the right (up) Supply will shift to the left (up) Demand will shift to the left (down) Supply will shift to the right (down)

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Answer #1

ANALYSIS OF THE PROBLEM

The public collages and the private colleges act as the substitutes for each other. Due to this factor the increase in demand for one will lead to the decrease in the demand for the other.

In the above problem the increase in the state subsidies will lower the cost of education in the public colleges and hence will see the greater enrollment of the students in the public colleges and the demand for the enrollment in the public colleges will increase and demand for enrollment in private college will decrease  because of the substitution effect.

hence

IN PUBLIC COLLEGES - DEMAND CURVE WILL SHIFT TOWARDS RIGHT

IN PRIVATE COLLEGES - DEMAND CURVE WILL SHIFT TOWARDS LEFT

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