HI5003 - Economic Principles - Assignment

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Holmes Institute Sydney

HI5003 Economics for Business (HI5003)

Added on 2020-03-01

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HI5003 - In this assignment, we discuss Economic Principles. In this assignment, we discussed some important questions related to Economic Principles, in question one negative externality from the provision of education by the private sector without government subsidies. In question 2 we discuss Positive externality from the provision of education by the private sector without government subsidies.

HI5003 - Economic Principles - Assignment

Holmes Institute Sydney

HI5003 Economics for Business (HI5003)

Added on 2020-03-01

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HI5003 - Economic Principles - Assignment_1

Economic Principles2Externalities, Investment Spending, unemployment and IncomeQuestion 1 part aFig: Negative externality from the provision of education by the private sector without government’s subsidies FeesS1S* aNegative ExternalityF1 F* b eD 0 Q1 Q* Quantity of EducationThe graph is a representation of negative externality resulting from provision of higher education by the private sector without subsidization by the government. According to Arnold (2015) a negative externality is an additional cost to users from the actions on another party. Q* is the market demand for higher education and the equilibrium fee is F*. However, without a government subsidy, the private higher education providers charge a higher fee F1 by supplying education to Q1 number of higher education level that is social optimal cannot be provided by the private sector because it results in a deadweight loss equal to abc and higher fee to low number of students (Goodwin et al., 2015). The high fee will discourage many students from enrolling into the universities. The role of the government’s subsidy is to ensure that there is optimal supply of higher education. The private supply of education results in externality (Publicecon.wikispaces.com, 2017).

HI5003 - Economic Principles - Assignment_2

Economic Principles3Question 1 part bFig: Positive externality from the provision of education by the private sector without government’s subsidies FeesS1 (Without subsidy) gdS (With Partial Subsidy) aS (With full Subsidy)F2 F1 b e F*c f SMB2 SMB1PMB2.8B MQ SQ1 SQ* Quantity of EducationF2 represents the market fees charged by the private providers when they offer education to MQ students. With full subsidy from the government, the fees charged is F* to SQ* number ofstudents. After a 2.8 Billion reduction in funding (meaning that there still exist some subsidy, thefee charged rises from F* to F1 and the number of students falls from SQ* to SQ1. The socially optimal level after the cut in funding is SQ1.

HI5003 - Economic Principles - Assignment_3

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