Economics Assignment: Market Equilibrium, Externalities, and Policy

This economics assignment addresses key concepts including market equilibrium, marginal private benefit, and marginal private cost. It analyzes the market for education in China, calculating the equilibrium price and quantity, and constructing demand and supply curves. The assignment further explores the impact of a positive externality on the market outcome, calculating the social optimum and deadweight loss. Finally, it discusses government policies to improve market outcomes, specifically focusing on cash transfer programs to promote education. The solution provides detailed calculations and explanations for each part of the assignment, offering a comprehensive understanding of the economic principles involved.

Economics

Table of Contents
Question 1: The marginal private benefit and (demand) and marginal private cost (supply) of
education in China are described by ...............................................................................................3
Question 2: ......................................................................................................................................4
Question 3: Consider the apples in a small country. Domestic demand and supply is given by ....5
When government allows for international trade then equilibrium state changes from 6 units to 5
units. Therefore, equilibrium price decreases with increases in quantity. Under this condition,
winners are international companies who purchase apples on low price and sell it on high price.
While looser will be domestic country and buyers. .......................................................................6

Question 1: The marginal private benefit and (demand) and marginal private
cost (supply) of education in China are described by
P = 100 – 0.1 QD
P = 10 + 0.1 QS
a) Calculate the market equilibrium quantity and price of education
Solution: At equilibrium condition, Quantity of demand = Quantity of supply
QD = QS
(100 – P) * 10 = (P – 10) * 10
2P = 110
P = 55
Therefore, price of education is $55.
Market equilibrium quantity, (100 – P) * 10 = (100 – 55) * 10 = $450
Henceforth, Equilibrium Price = $55
Equilibrium Quantity = $450
b) Calculate marginal private benefit and marginal cost diagram
Price of education
($)
Market demand
($)
Market supply
($)
15 850 50
25 750 150
35 650 250
45 550 350
55 450 450
65 350 550
75 250 650
Demand Curve
Supply Curve

c) An economist has estimated that consumption of education generates a positive externality of
$10 a unit. Calculate the social optimum and deadweight loss.
Solution: Socially optimal output is achieved when output is occurred by the intersection of
marginal social cost (MSC) and marginal social benefit (MSB) therefore, also known as
allocatively efficient level of output.
Marginal social cost = Marginal Profit Cost + Externality
= (100 – 0.1 QD) + 10
= 110 – 0.1 QD
Marginal social benefit = Marginal Profit Cost + Externality
= (10 + 0.1 QS) + 10
= 20 + 0.1 QS
Therefore, Marginal optimum = $65
Price of education
($)
Marginal social
cost
($)
Marginal social
profit
($)
25 850 50
35 750 150
45 650 250
55 550 350
65 450 450
75 350 550
d) What policy could the government implement to improve the market outcome?
Government play an important role in improving the market outcome by implementing
various policies. For improving educational system and promote education, cash transfer policy
helps in increasing enrolment and attendance. Through Conditional cash transfer, regular

payment can be provided to poor household for meeting their certain conditions and engaging
children of them in education.