Economics help.plz iam stuck?

Question

Tuition_____Quantity Demanded_______Quantity Supplied

___________ (thousands per year)_____ (thousands per year)

$1,500_________10_________________ _50

1,250__________20___________________40

1,000__________30___________________30

750____________35__________________ 20

500____________40__________________10

250____________50___________________ 5

1. Assume the legislature sets college tuition at $1,250.

a. Draw a diagram showing the effect of this policy. Does the policy act as a price ceiling or a price floor? Explain the impact on quantity demanded and quantity supplied.

b. What kinds of inefficiencies are likely to arise from this policy?

2. Parents around the state are up in arms. They cannot afford to send their children to college and they are letting their legislators know about it. As a result, assume that the legislature sets college tuition at $500.

a. Draw a new diagram showing the effect of this policy. Does the policy act as a price ceiling or a price floor? Explain the impact on quantity demanded and quantity supplied.

b. What kinds of inefficiencies are likely to arise from this policy?

3. The legislature had heard from colleges around the state that they cannot maintain a quality education for students with such a low tuition. As a result, the legislature decides to provide a grant for low-income students and remove all price controls on tuition. Are students better or worse off as a result of these policies? Are state colleges better or worse off? Explain.

Answer 1

If tuition is $1250, then according to your chart 20 will be demanded but 40 will be supplied. This means that supply and demand are not equal, and therefore the market is not at its equilibrium position. When supply is greater than demand, the result is a market surplus.

If tuition drops to $500, then the opposite will happen. The quantity demanded will be 40 but the quantity supplied will be only 10. When demand is greater than supply there is a shortage - that is, there is not enough to go around for everyone who wants it.