Impact of Government Subsidies on Education: An Economics Report

This report examines the role of government subsidies in the education sector, focusing on how these subsidies influence the cost of production and, consequently, the price for consumers. It explores the effects of subsidies on supply and demand curves, illustrating how they can lower prices and increase the quantity of graduates. The report also discusses price regulations, the college wage premium, and the broader economic benefits of investing in education, including its impact on individual prosperity, democratic values, and economic growth. It references various academic sources to support its analysis and provides insights into the labor market dynamics affecting university graduates and the role of government in stabilizing the market. Furthermore, the report emphasizes the importance of education as a key investment for individuals and nations, highlighting its role in poverty reduction and innovation.

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NAME:
ID NO:
Tutor’s name:
In many states, the federal government gives subsidies in the production sector in an effort to
lower the cost of production in the long run and hence lower it to the consumers. A
government subsidy refers to the payment that is made to the producers to support aid them in
the production of a given good. The government subsidies reduce the production cost for the
good in question .The subsidies are responsible for making a shift to the right side of the
supply curve3.
For any quantity that is produced, the marginal costs which are relative to each item fall in
line with the subsidy. The diagram below shows the supply that is made before the subsidy is
made and just after the subsidy is made. The subsidy of $ 2 was made per every graduate2.
The subsidy has led to the shift of the supply curve to the right and hence lowering the price
of the graduates from $ 5 to $ 4.The producers receives $ 6 per graduate and the consumers
pays $ 4 per graduate and the government then pays $ 2 per graduate1.

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Given that the government does not give the subsidies, the supply curve will shift to the left
hence increasing the price from say $ 8 which will be the price which will be received by the
producer. The demand of the university graduates will go down from say four units to 3 units.
The reduction in the government subsidy in the education sector makes fewer people be
graduates because the cost of producing a graduate is high and hence the graduates will be
available in the market at a relatively higher cost4.
2. Just as the article suggests, when the firms are in need of the skilled workers, the demand
for the university students in the firms grow. When demand goes high in the market, the
graduates are said to be in shortage and then it is the mandate of the government through its
regulation to make sure that the market stabilizes at equilibrium2. If left alone, the price for
the graduates will shoot so that the consumers will not be able to afford the graduates and this
causes an imbalance to the market forces .The government will come up with the price
regulations so that it makes sure the workers are not exploited by the employers. Generally,
an increase in demand will result to the demand curve shifting to the right and hence causing
some shortages in the primary price. The latter happens due to the fact that the quantity that is
being demanded is much more than the one that is supplied at the original price4.

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4
In the short run, the number of firms is always fixed; the supply curve becomes relatively
steeper and the prices tend to go up by a relatively large amount.
In the long run, the firm can opt to enter the market, the supply curve becomes relatively flat
and the prices go up by a considerably small amount1.
3.
A college wage premium is a phrase that is used to refer to the wage gap that exist the
students from the graduates and the other learners from high school. The value given to
education is determined by decisions which have a very important effect in our later date
incomes2. A learner can opt to do his or her investment in education if he finds out that the
investment is not prone to many risks. Given that the student finds out that investing in
education is much riskier, he or she opts to invest in alternative opportunities. The relatively
flat college wage came about due to many graduates entering the labour market and this led
to the market being filled with the skilled labour. As a result of the increase in the supply for
labour, the demand for the latter went down and so was the price. This led to the supply curve
shifting to the left3.
4. As far as our lifetime dos are concerned, investing in education ever since time
memorial has been one of the best investments around.it has a variety of benefits ranging
from being the most important and vital foundation for opportunities and prosperity, the
strengthening of peoples democracy and enrichment of the civil rights of citizens and
provides a pathway to the prosperity of economy3. Each and every person, including those

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who are in academia research, businesses and those in the federal government play a very
vital role in the education sector. The USA and Euro zone records a high paying rate for the
degrees because there are very few cases of unemployment in the for the university
graduates. The embassy of the United States of America almost everywhere invests in
education and works with its local partners with an aim of expanding education opportunities
for the natives of the place of their interests. Through their Fulbright commissioning and
education, the advising centres of United States of America offers opportunities for most
natives for their students, teachers and also the scholars with an aim of broadening their mind
beyond horizons so that they gain some new skills which will help them in making the most
out of the labour market. Investment in education will also see many of the learners advance
in their thinking and through this they become innovative and can hence come up with new
inventions4.
Engaging in the education sector is also a good motive in the process of eradication of
poverty. The educated people in most occasions do not lack jobs since they have the skills
instilled to them in the school. They can then apply them in their daily lives and hence turn to
be their hustle for the day. This will in the long run see the success of their country and also
leads to the economic prosperity. The figure shown below shows a variety of returns coming
from different fields of investment1.

Price
S
Quantity
D
P*
Q*
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1Glick, Peter, and David E. Sahn. "The interest for essential tutoring in USA: Price, quality,
and the decision amongst open and private suppliers." Periodical of Growth Economics 79,
no. 1 (2012): 138-155
2Heller, Donald E. "Understudy value reaction in advanced education: A refresh to Leslie and
Brinkman." The Periodical of Higher Education 65, no. 5 (2013): 613-649.
3Leslie, Larry L., and Paul T. Brinkman. "Understudy value reaction in advanced education:
The understudy request examines." The Journal of Higher Education58, no. 5 (2013): 161-
214.
4Savoca, Elizabeth. "Another take a gander at the interest for advanced education: Measuring
the value affectability of the choice to apply to school." Economics of Education Review 9,
no. 2 (1990): 123-136

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Bibliography
Glick, Peter, and David E. Sahn. "The interest for essential tutoring in USA: Price, quality,
and the decision amongst open and private suppliers." Periodical of Growth Economics 79,
no. 1 (2012): 138-155
Heller, Donald E. "Understudy value reaction in advanced education: A refresh to Leslie and
Brinkman." The Periodical of Higher Education 65, no. 5 (2013): 613-649.
Leslie, Larry L., and Paul T. Brinkman. "Understudy value reaction in advanced education:
The understudy request examines." The Journal of Higher Education58, no. 5 (2013): 161-
214.
Savoca, Elizabeth. "Another take a gander at the interest for advanced education: Measuring
the value affectability of the choice to apply to school." Economics of Education Review 9,
no. 2 (1990): 123- 134.

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