Effects Of Binding Price Ceiling On Tertiary Education

Question: Discuss about theEffects of Binding Price Ceiling on Tertiary Education. Answer: Market of Tertiary Education Under Regulation (Pricing Ceiling) Regulation restricts the forces of demand and supply to determine the price of goods and services. Under price celling regulation, the prices and determined and set by the government and economic forces of demand and supply have no effects in Tertiary education. 1 The government sets a price ceiling below the equilibrium price since creating it above equilibrium will have no effect. From the above figure, the price ceiling is set below the equilibrium at the intersection between supply curve (S) and the demand curve (D). There will be excess demand or shortage is seen above since many students will need to attend tertiary education when the supplier of these institution are discouraged by price ceiling. 2 This will be replicated in the case of Experimentia Island, the government decides to incorporate the binding price ceiling on tertiary education. This means that cost of providing training will be set at a point lower than the existing price set by the service providers as shown above. Reforms and Outcomes (Deregulation) Deregulation leads to a free market where the economic forces of demand and supply dictate the equilibrium price and quantity demanded and supplied. It means that the new price will move from the ceiling point to a point where the demand and supply intersect as shown below thereby eliminating the shortages. The suppliers will be motivated since they will get the price that enable them to earn profits. 3 If deregulation occurs and the market forces for the tertiary education are allowed to determine the price, supply, and demand, then a state of equilibrium will soon be realized at P* with Pe and Qe as the equilibrium prices and quantity. 4 The prices rise from the PC (pricing ceiling) to Pe (equilibrium price) to point P* and the quantity increase from QC (ceiling quantity to) Qe (equilibrium quantity) wiping away the shortage or excess demand. Consequences of Deregulation and Supply Elasticity The prices of the tertiary education will change with demand differently under the inelastic and elastic supply as show in the above panels. Panel 1 represents the inelastic supply whereas panel 2 illustrates elastic supply. Under the inelastic supply deregulations makes the demand to shift from D1 to D2 while the supply remains inelastic. There is no shift in the supply but a movement along the supply curve triggering an increase in prices from P1 to P2 and the quantity increases from Q1 to Q2. However, the increase in price is bigger compared to an increase in the quantity of tertiary education supplied. This indicates that when the demand curve shifts from D1 to D2, the percentage change in the price is greater than the percentage change in quantity provided or supplied. 5 This means the supply will only slightly increase their supply but charge higher prices for the tertiary education provided. In panel 2, the supply curve is elastic and the Demand curve shifts to the right from D1 to D2 while there is a movement in the supply curve changing the price from rises from P1 to P2 while the quantity supplied increases from Q1 to Q2. However, with the elastic supply deregulation causes a greater increases in the quantity provided that the price increase. This means that the shift in demand will have a slight change on the prices compared to the quantity supplied. 6 Therefore, under the elastic supply, the percentage change in the quantity is higher than the percentage change in the price as shown above. The outcome is that more education will be provided under the elastic supply than inelastic supply following the deregulation as educational institutions allow the forces of demand and supply to determine the equilibrium quantity and prices. Effect on Efficiency The situation created in this case is a level playing field with an open competition where learners can adequately choose which institution to attend and which field to venture in. The overall efficiency of the education system significantly increased as the inefficient systems slowly disappear freeing up opportunities for newer and better services provisions in the learning centers. 7 Effect on Equity Learners have different skills and levels of ambition. Deregulation may not lead to equity as the difference between the rich and the poor takes center stage. 8 In the economy, the forces of demand and supply operate together with peoples particular skills to determine the rewards they get from education. Notes Sen, Anindya, Anthony Clemente, and Linda Jonker. "Retail gasoline price ceilings and regulatory capture: evidence from Canada." American law and economics review2 (2011): 532-564. Patrick, Anderson L., et al. "Price elasticity of demand." Makinac Center for Public Policy 13 (1997). Ben, Bernanke. "Market Demand Analysis and." Introduction to Air Transport Economics: From Theory to Applications (2008): 49. Olivier, Blanchard, and Giavazzi Francesco. Macroeconomic effects of regulation and deregulation in goods and labor markets. No. w8120. National Bureau of Economic Research, 2001. Olivier, Blanchard and Landier, Augustin. "The perverse effects of partial labour market reform: fixed term contracts in France." The Economic Journal480 (2002): F214-F244. Florence, Adebayo, A. "University Staff's Perception of Deregulation on Higher Education in Nigeria." International Journal of Education Literacy Studies2 (2014): 63. Adeogun, A. A., S. T. Subair, and G. I. Osifila. "Deregulation of University Education in Nigeria: Problems and Prospects." Florida Journal of Educational Administration Policy1 (2009): 1-8. ,Adeniyi, Adetunji T. "Quality issues: Beyond the Nigerian institution." International Journal of Research Studies in Management2 (2015). Bibliography Sen, Anindya, Anthony Clemente, and Linda Jonker. "Retail gasoline price ceilings and regulatory capture: evidence from Canada." American law and economics review 13.2 (2011): 532-564. Anderson, Patrick L., et al. "Price elasticity of demand." Makinac Center for Public Policy 13 (1997). Bernanke, Ben. "Market Demand Analysis and." Introduction to Air Transport Economics: From Theory to Applications (2008): 49. Blanchard, Olivier, and Francesco Giavazzi. Macroeconomic effects of regulation and deregulation in goods and labor markets. No. w8120. National Bureau of Economic Research, 2001. Blanchard, Olivier, and Augustin Landier. "The perverse effects of partial labour market reform: fixed term contracts in France." The Economic Journal 112.480 (2002): F214-F244. Adebayo, Florence Aduke. "University Staff's Perception of Deregulation on Higher Education in Nigeria." International Journal of Education Literacy Studies 2.2 (2014): 63. Adeogun, A. A., S. T. Subair, and G. I. Osifila. "Deregulation of University Education in Nigeria: Problems and Prospects." Florida Journal of Educational Administration Policy 3.1 (2009): 1-8. Adetunji, Adeniyi Temitope. "Quality issues: Beyond the Nigerian institution." International Journal of Research Studies in Management 4.2 (2015).