Answer to Question #128397 in Microeconomics for Lwazi

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

In the market, two factors do change. The demand curve tends to shift to the origin due to a decrease in consumer income and the supply curve tend to shift towards the left due to an increase in the cost of education. Upon the extent of their change, the following scenarios could arise.

a) A shift in demand is more than the shift in supply: This is as shown in the figure below. In this situation both the equilibrium price and equilibrium quantity will decrease. 

b) A shift in demand is less than the shift in supply: This is as shown in the figure below. In this situation both the equilibrium price and equilibrium quantity will rise.

c) A shift in demand is equal to shift in supply: This is as shown in the figure below. In this situation the equilibrium price will remain the same while the equilibrium quantity will reduce.