Microeconomics

MICROECONOMICS 6

Assignment 04

Part A

Question 1

Supposing that tuition remains below equilibrium price, the demandfor university education will exceed supply. The number ofindividuals applying to join university will increase. This isbecause when tuition is below the equilibrium price, more people areable to afford university education. Abbott et al. (2013) explainthat any reduction in tuition fees causes a rise in studentenrollment. As a result, those who could not previously pay fortuition become eligible to join campus.

On the downside, higher learning institutions will not be in aposition to provide the quality of education required. The number ofindividuals applying to join university will exceed the capability ofthe institutions to effectively educate. Considering that statefunding does not change, it implies that the money the state gives touniversity as a subsidy remains the same. Hence, universities cannotfor instance, increase the number of instructors they have, admitlearners to all the classes they desire to take, or expand theirclassrooms to accommodate more students.

Universities will be compelled to reduce admission through enhancingtheir entrance standards. For example, assuming that prior to thecondition that tuition remains below equilibrium price, universitieswere lenient on the entry qualifications, they will now raise therequired credentials. This means that only students with the highesthigh school grades will qualify to join campus. As such, others whomay afford the tuition fee but do not meet the academic requirements,will not be accepted in the university. This way it becomes possiblefor colleges to manage the excess demand.

Question 2

Under the conditions discussed in question one, it is not possiblefor education to be “equally accessible”. For all people toaccess education fairly, it means that the university does not put inplace new rules, which result in the lack of admission for someindividuals. However, when the demand to join campus exceeds theability of universities to admit as many students, the higherlearning institutions are compelled to implement measures aimed atreducing the number of student applications. As a result, it becomesimpossible for all individuals to access the education.

For instance, more students resonate to an increase in the number ofclasses, yet the number of classrooms does not change. Thus, somestudents will not have the advantage of being admitted to all thelessons that they want. A different illustration is that institutionsmay decide to increase other fees not related to tuition, likeaccommodation fee. By doing so, the reduction on tuition fee isreplaced by an increase in accommodation fee. As such, the sameeffect of inability to afford university education prevails andrestricts all students from evenly joining campus.

Part B

Question 1

An inefficient outcome is produced when there is a private marketfor flu vaccinations. This is because, immunizations againstinfectious illnesses result in positive external benefits. Forinstance, someone getting the vaccination privately benefits from thefact that his or her chance of getting the flu declines.Nevertheless, other individuals will also benefit since, it is lesslikely they will get the flu from someone already vaccinated. Thelatter advantage is external and is greater than the private one,because more people gain when only one person is vaccinated (Gans,King &amp Mankiw, 2011).

As a result, less people are willing to buy or get the flu shot sincethey already benefit by not being vaccinated. Considering that in aprivate market, the main objective of any business is to make profitsfrom selling a product. Thus, it is highly likely that privatecompanies will produce fewer vaccines, than is the required efficientquantity, to avoid making a loss from producing large amounts of avaccine, bearing in mind that less people will pay money for it(Gans, King &amp Mankiw, 2011). The private market will also set theprice for the vaccine and only sell to the individuals that arewilling to buy. Those who refuse to buy do not get the flu shot. Theoutcome is that less people will get the flu shot, which leads toinefficiency in vaccination.

Question 2

One way through which government participation could result in anefficient measure of vaccinations is through subsidies. There aremany reasons why private firms are likely to produce inefficientamounts of a vaccine. These include the high cost of production andminimal returns. However, government subsidies aid the productionprocess. A subsidy refers to a form of financial assistance aimed atreducing the cost of creating a good or service (Gans, King &ampMankiw, 2011). This will ensure that firms do not risk running intolosses following a massive production of vaccines.

The government can either pay for part or all of the productioncost, financing distribution of the vaccine, or fail to tax thepublic good. As a result, expenses incurred by private companies, inmaking the vaccine readily available and affordable to the public,reduces. Hence, more people will be able to purchase the vaccine, inaddition to the fact that it will be easily accessible.

Question 3

A private good is described as a product that is not readilyavailable for everyone. In order for an individual to own a privategood, he or she must purchase it. The person who buys the productowns private rights over it, meaning that other individuals cannotown it or use it. It is excludable because the owner has propertyrights over the good (Mankiw, 2014). This means that one must pay theowner to enjoy using the product.

An illustration is someone who owns a swimming pool. The person hasthe right to prohibit anyone else from swimming in the pool, since itis a private property. But the owner could also decide to allowaccess to the pool to the public. By doing so, he or she may charge afee. People who may be willing to swim, but are unable to pay thefee, do not have the right to swim in the pool.

A public good is not excludable, signifying that the use of theproduct by one individual does not prevent another person from usingthe same product (Mankiw, 2014). The goods are available for allpeople to use, and no one owns more rights over the product thanothers willing to use it. An example is a water fountain located in apublic park. Any person visiting the park is free to use the waterfountain without restriction. This means that as many people aspossible can take pictures of the fountain, hold the water or standclose to it.

References

Abbott, B., Gallipoli, G., Meghir, C., &amp Violante, G. L. (2013).Education policy and intergenerational transfers in equilibrium.National Bureau of Economic Research Working Paper, 1-104.

Gans, J. S., King, S. P., &ampMankiw, N. G. (2011).&nbspPrinciplesof microeconomics. South Melbourne,Vic: Cengage Learning.

Mankiw, N. G. (2014). Principles of economics. Melbourne:Cengage Learning.