ATMC BUS102 Introduction to Economics Assignment: Article Response

This economics assignment analyzes an article titled "Wealth by Degrees" from The Economist. The student addresses how falling government subsidies affect the price of degrees using a supply and demand diagram, explaining the impact of increased demand for skilled workers on the market for university graduates. The assignment also defines college wage premium and explores the causes of a flat college wage premium in Europe, linking it to the rising supply of graduates and generous minimum wages. Finally, the assignment concludes by assessing whether a university degree is considered a good investment based on the article's insights, highlighting higher earning potential and lower unemployment rates for graduates. The solution uses diagrams and explanations to provide a comprehensive understanding of the economic concepts discussed.

Price
S
Quantity
D
P*
Q*
S1
P
1
Q
1
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NAME:
ID NO:
Tutor’s name:
ATMC BUS102 Introduction to Economics–Semester 2 2017
Assessment task 2 – Responses to articles - Article 2
DUE via Safe Assign 5pm Sunday 24thSeptember
“Wealth by degrees “from The Economist June 28th 2014
https://www.economist.com/news/finance-and-economics/21605909-returns-investing-university-
education-vary-enormously-wealth
Access the article at the URL given above and answer the questions in the spaces below. Use full
sentences and show all necessary working but do not use more space than is given here. Other
references are not necessary but, if you do use any (for example, online economics glossaries)
please list at least the URL of your source. Marks are shown and total [15].
(1) According to the article the price of a degree is rising, “as a result of falling Government
subsidies”. Use a simple demand and supply diagram below to explain the effects on the price of a
degree in the above scenario.
[4]

Price
S
Quantity
D
P*
Q*
D0
Q0
P0
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Subsidies provided by government plays an important role of making degree
education affordable to many. However, when the government scales back subsidies for
university education, the cost of acquiring degree increases. This situation reduces the
number of students who are enrolling for the academic degree. As a result, the supply of
degrees in the market will decline and thus beocme expensive. On the graph above, a
decrease in the supply of degrees is shown by the change in the supply curve from S to S1.
The number of university degrees reduces from Q* to Q1 while the price of degree increases
from P* to P1.
(2) The article claimed that “when firms are hungry for skilled workers, their demand for university
graduates grows”. Explain, using the diagram below, the effects on the market in the above
scenario. [4]
When the need for skilled workforce increases, the demand for university graduates
soars. On the figure above, the increase in demand for graduates is demonstrated by the

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change in demand curve from D to D0. This change results in a rise in the number of
graduates demanded from Q* to Q0. Consequently, the price of degrees will increase, that is,
move from P* to P0. The increase in price is caused by a shortage since the demand exceeds
the supply.
(3) Explain what a college wage premium is and what the causes are of a “relatively flat” college
wage premium in Europe. [4]
Meaning of College Wage Premium
College wage premium refers to wage differences between employees with a graduate
or college degree and those with solely a high school degree. Usually, workers with a
graduate degree are known to earn higher wages than the high school graduate employees.
Cause of Relatively Flat College Wage Premium
A large number of graduates in the recent years in Europe is one of the factors that
has contributed to relatively flat college wage premium. Thus, it means that the supply of
university graduates is increasing faster than the demand making the college wage premium
to stabilize. Furthermore, the generous minimum wages are also contributing to the flattening
of college wage premium. The minimum wage reduces the disparities between low and
highly paid workers.
(4)According to the article is a university degree considered a good investment? Why or why not?
[3]
According to the article, a university degree is a good investment. Foremost, the
employees who have degree earn higher incomes compared to those workers that are less
educated. Therefore, a student will get a good return for venturing in university education.
Also, statistics show that unemployment rate for the graduates are low in the United States
and among the Europeans countries. Hence, a student who pursues university education
increases his or her chances of getting employment.