Suppose that more workers with a post secondary education (PSE) degree improves the overall productivity of all workers, including those without a PSE degree, but students are neoclassical utility maximizers such that they only take into consideration the private benefits to themselves when deciding whether to go to college or university.

1) Draw a supply and demand graph for PSE that reflects both the private and social costs and benefits of PSE.Clearly label all curves, as well as the private market and socially optimal tuition fees (prices) and quantities.

2) Describe in words and show on the graph how the government might interveneto change the demandfor PSE to achieve a socially optimal outcome.Label the net tuition paid by students and the tuition received by theuniversities/colleges.

3) Describe and show on the graph how the government might interveneto change the supplyof PSE to achieve a socially optimal outcome. Label the tuition received by the universities/colleges. and the tuition paid by students.

Add a File

Record Audio