Answer to Question #127225 in Microeconomics for Xongile

Question

You have been appointed as an economic advisor to the principle of Bright Sparks College, a firm operating in the market for tertiary education. Over the past 18 months the following simultaneous changes have been noticed in the market for tertiary education:
- A decrease in consumer income
- An increase in the cost of providing tertiary education service

Answer 1

a) When there is a deceased in consumer income, there is a change in the demand hence the demand curve shifts from the right to the left.that is from the demand curve 2 to demand curve 1 hence a new equilibrium point will; be formed. When consumer income decreases,, consumers will reduce their consumption hence decrease in demand. Consumers tend to demand more when they have high disposable income and less when the income is low.

b) When the cost of providing tertiary education service increases, the supply curve shifts from the right to the left, that is from supply curve 2 to the supply curve 1 due to the decrease in supply, thus it will result to a new equilibrium point. When cots of providing education is high, , less profits will be made hence decreasing the quantity of supply. This could be due to increase in the level of technology and raised taxes by the government among others.