Answer to Question #119573 in Macroeconomics for Abiah Kalim

Question

Evaluate, using an appropriate diagram, the effects of reducing the subsidy for university education (20 marks)

Answer 1

Government can create the demand for education by providing subsidy to the consumer who is the student. But once the government has reduced subsidy on education it will have some impacts on both the learners, teachers and the learning institutions.

The government provides subsidies to universities through providing loans to students which helps the students as upkeep money. Subsidies also help in developments in the universities like construction of libraries where learners can conduct their research work.

When the government reduces subsidies the demand for education is going to decrease. For instance if the subsidies helped the learner to buy books through the loans given to them the student will not be in a position to continue with his education due to lack of books.

Due to a reduction in subsidies there will be inadequate teachers. For example if the subsidies helped the learning institutions to employ more teachers rather than those provided by the government in order to cater for the increasing demand in education. Due to this the learning institutions will have inadequate teachers.

The reduction of subsidies on education will lead to poor quality of education being offered in these institutions. This is because the number of teachers and classes will not be enough. This will lead to congestion of learners in classes.

When government reduces subsidies in universities this will lead to private universities being valued than the public universities hence the poor child might not go to the university even if he or she has qualified.

Reduction of subsidies will lead to increase of fees by the university management in order to run it. This will overburden the parents so much in order to improve the facilities around the university.

In order to raise finance to run the university the institutions will be encouraged to come up with ideas or projects to run the university. Communities and even well wishers can be involved in these income generating activities.

The demand of education will rise from D1 to D2 while the subsidy will reduce from S2 to S1.  

The following graph shows effects government reducing subsidies on university education.