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Question: if the demand equation for an education market is p...

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If the demand equation for an education market is P = 14 - 1⁄2Q and the supply equation is P = 2 + Q, where P is the price measured in thousand dollars and Q is the quantity of students measured in millions of students.

(a) If there is no government involvement and the education market is competitive, determine the equilibrium student enrollment and price of education. Use an education market diagram to explain your answers.

(10 marks)

(b) If education generates positive externality, is the equilibrium quantity in answer in (a) efficient? Discuss.

(5 marks)

(c) Assume that the external benefit of education is $6000. If the government provides a subsidy of $6,000 for every students, determine the student enrollment and price of education after the subsidy. Explain your answers with the aid of a diagram.

(10 marks)

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