University: Economic Analysis of Tertiary Education Market

This report provides an economic analysis of the tertiary education market, comparing the market dynamics before and after reforms. It examines the impact of price controls, specifically price ceilings, on supply, demand, and market efficiency. The analysis includes a discussion on the effects ...Read More

Running head: ECONOMIC ANALYSIS
ECONOMIC ANALYSIS
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2ECONOMIC ANALYSIS
Table of Contents
Market of Tertiary Education sector prior to reforms................................................................4
Market of Tertiary Education market after the reform...............................................................5
Comparison of deregulation when supply is elastic and inelastic..............................................6
Economic Efficiency of Tertiary Education market before and after the reform......................7
Equity of tertiary education market............................................................................................8
References..................................................................................................................................9

3ECONOMIC ANALYSIS
Market of Tertiary Education sector prior to reforms
Domestic and local governments more often adopt price control policies, these price
controls are legal minimum or maximum prices set by the government in order to manage
economy directly by government intervention. Government generally follows two types of
price controls and price ceiling is one of them. Price ceiling is thus a legal maximum price
that can be set by the government.. In this context of market of Tertiary Education sector ,
price ceiling is being imposed. This ceiling generally creates a shortage and this shortage is
created since the price is set below the market price. Due to this shortage excess demand or
supply is created. At this price producers will not be willing to produce and the reason is
price ceiling and this low production creates consumer demand high, as a result demand will
exceed supply and people who are willing to buy more but cannot buy. In such a situation if
demand curve is elastic then effect on consumer surplus is positive, producers on the other
hand will be affected as this surplus will reduce number of firms willing to take that low
price, and the existing firms have to accept lower price. The shortage of goods results in
consumers to have queued up in line to get commodities, government rationing and the
growth of black market dealing with the scare commodities (Pu, 2013).

4ECONOMIC ANALYSIS
Figure 1: Price ceiling
Source: (Pu, 2013).
In the above figure, price, quantity and supply is shown. The figure shows that under
price ceiling the shortage created is Qs to Qd and the controlled price is Pc.
Market of Tertiary Education market after the reform
As soon as price ceiling is removed from the market of tertiary education market , free
market evolves. Free market is characterized by decentralized arrangements and through this
individuals make decisions, free market economy can be affected by black market (Ryan,
2012). Thus it mainly shows voluntary economic activity as it is not controlled by any
central authorities. In this context as soon as prices are deregulated, the affect on price and
quantity changes.
Figure 2: Deregulated price
Source: (Ryan, 2012).
In the above figure in presence of ceiling price was set as Pc , but in its absence prices are set
at Pe this price is also equilibrium price at this price the corresponding quantity is Qe, thus

5ECONOMIC ANALYSIS
there exist no shortage in the market even if demand increases , the supply will change as per
as the mechanism of market dynamics.
Figure 3: Market dynamics
Source: (Marginson, 2013).
In the above figure as soon as demand increases, supply decreases. In this context as
soon as government deregulate prices , a increase in demand results in increase in price and
this is because supply contracts.
Comparison of deregulation when supply is elastic and inelastic
Elasticity of supply is calculated as the ratio of balanced change in the quantity
supplied to the balanced change in price. An inelastic supply is determined when supply does
not increase or decrease accordance to changes in price. Elastic supply on the other hand
shows supply of commodities that increases or decreases as the price goes down or up
(Harstad, 2012).

6ECONOMIC ANALYSIS
Figure 4: Supply elasticity
Source: (Harstad, 2012)
The above figure shows the inelastic and elastic supply. In inelastic supply situation,
as supply changes, price falls for which quantity increases but the degree of increase in low.
However, in presence of elastic supply as supply changes price again falls the degree of
increase of quantity is high as compared to inelastic supply. Thus producers gain is more in
inelastic supply situation.
Economic Efficiency of Tertiary Education market before and after the
reform
Before the reform the prices in the market where set by government and after the
reform prices were determined by market forces. Economic efficiency is defined as the
benefits that are obtained and these benefits are higher than costs. Under price ceiling,
economic system become more efficient and this reduces the risks that are associated with
economic participants. Here the risk is the cost that occurs in terms of higher price. Thus

7ECONOMIC ANALYSIS
government regulation reduces risks the economic efficiency increases. On the other hand as
soon as government deregulates the market there is a chance that black market system
evolves, and in presence of this market economic efficiency decreases. Thus regulated market
is more desirable from consumer’s point of view but from the producers point of view
deregulation is encouraged. However, from efficiency point of view in presence of
regulation, dead weight loss exist due to shortage and this loss affects the marginal benefit of
the society (Zhang & Zhang, 2013)..
Equity of tertiary education market
In a free market where there is no regulation, individuals will not be able to obtain
same amount of wealth as compared to regulated market, thus equity will be elusive and thus
individuals get depends upon the match between supply and demand. Here demand and
supply determines prices and changes accordingly.

8ECONOMIC ANALYSIS
References
Harstad, B. (2012). Buy coal! A case for supply-side environmental policy. Journal of
Political Economy, 120(1), 77-115.
Marginson, S. (2013). The impossibility of capitalist markets in higher education. Journal of
Education Policy, 28(3), 353-370.
Pu, J. (2013). An economic analysis of the external constraints on reform of the higher
education admissions system in China. Chinese Education & Society, 46(1), 51-63.
Ryan, P. (2012). Growth and consolidation of the Australian private higher education
sector. The ACPET Journal for Private Higher Education, 1(1), 5.
Zhang, G., & Zhang, S. (2013). Information efficiency of the US credit default swap market:
Evidence from earnings surprises. Journal of financial stability, 9(4), 720-730.