Economics 101: Supply, Demand, College Wage Premium Analysis

This economics assignment explores the relationship between government subsidies, supply and demand, and the college wage premium. The paper analyzes how changes in government subsidies impact the price of education and the value of graduates, examining the effects on the supply curve. It also discusses market equilibrium, focusing on how the demand for skilled workers influences wages and salaries. The assignment further delves into the concept of the college wage premium, highlighting the wage gap between college and high school graduates, and emphasizes the importance of investing in education. Finally, it references various academic sources to support its arguments, illustrating the economic principles discussed through real-world examples and data.

Price
S
Quantity
D
P*
Q*
Economics Introduction 1
Name
Professor
Institution
Course
Date
NAME:
ID NO:
Tutor’s name:
(1)
[4 marks]

Price
S
Quantity
D
P*
Q*
Economics Introduction 2
The price of a degree is going up when the subsidies from the government goes down.
This is because the production of graduates will be costly hence those who are graduating
from the colleges will tend to have high demand because they are few. When the government
subsidies goes down, the cost of production of graduation will go up and hence the value of
the graduates will also go up.
The marginal cost for any quantity that is produced and is relative to the item goes down in
line with the subsidies that are made by the government. The subsidies made are responsible
for the shift of the supply curve to the right and leads to the decrease in the price of those
people who are graduating from the universities Acemoglu (2014).
(2). [4 marks]

Economics Introduction 3
The equilibrium in the market occurs where the quantity supplied is equal to
quantity demanded. This occurs at point where quantity supplied is Q* and price is
P*.When the firms are in dire need for the skilled workers, then the demand for the
university graduates goes up which would be denoted by the movement of the
demand curve to the right (towards letter D).the movement will then be followed by
an increase in supply of the university students. When the supply of the skilled
workers increases, their prices starts to fall (Berman, Bound and Griliches, 2012
p.78).
As suggested by the article, when the firms are in shortage of the skilled workers, the
graduates will then have a high demand in the market and hence they can easily hike
their prices( wages and salaries).Due to high wages, the graduates will flow in the
market and by large numbers hence causing excessive supply in the job market. Given
that the graduates are left alone to determine the prices, they will hike it so that their
consumers are unable to acquire them. The government then comes in to control the
prices.
(3) [4 marks]
A college wage premium is the wage gap that exists between the college graduates
and that of high school graduates. The value of education is determined by other decisions
which also have a greater effect on our future earnings.one can opt to invest in other fields if
he or she finds out that the value of investing in education is riskier than that of investing in
that other field. The relatively flat college wage was caused by more graduates entering the
labour market so that the market became saturated with the skilled labour Johnson (2013).
(4) {3 marks}

Economics Introduction 4
Investing in the university education is one of the most important factors in our
lifetime.it is hence advisable to invest in education since; in most occasions; the future
benefits are more appealing. The degree, according to the USA and the Euro zone shows that
it pays handsomely since there are very fewer cases of unemployment for university students
in those areas. The labour markets are in need of the skills by the graduates and hence are
always in need. The point of saturation is not easily reached and this is what makes the
demand to be constantly rising over time. College degree is able to demonstrate some given
interest in particular fields of work, addition of knowledge and also experience. Those who
have completed a four year course in the university have more offers as compared to those
who have completed a two year degree from a given community college. One can give up
some expenditure today and invest in education which later will bring back advantage in form
of profits (Katz and Murphy, 2012, p.69).the figure below shows different returns with
different field of education presented.

Economics Introduction 5
Work cited
Acemoglu, D., 2014. Why have new progressions in skilled workers? Coordinated
specialized change and wage disparity. The Quarterly periodical of Economics,
119(6), pp.2114-2219.
Berman, E., Bound, J. also, Griliches, Z., 2012. Variations in the demand for skilled workers
inside US producing: prove from the yearly review of makes. The Quarterly magazine
of Economics, 5(3), pp.204-206.
Johnson, G.E., 2013. Variations in revenue inequity: the part of interest shifts. The periodical
of Economic Perspectives, 12(3), pp.23-44.

Economics Introduction 6
Katz, L.F., Murphy, K.M., 2012. Variations in comparative wages, 1999– 2007: free
market activity issues. The quarterly diary of financial aspects, 21(3), pp.34-48.