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 services.

Explain, with the aid of a graph, the impact of the above changes on the equilibrium price and equilibrium quantity in the tertiary education market.

Answer 1

Price of the tertiary education increased because of the increase in the cost, but at the same time consumers's income decrised, as a result the quantity of clients decreased. University needed to reduce prices, but new price still higher the old price and profit from the tertiary education is lower.