Question

How could I answer the following discussion question? Thanks!

Higher education has become increasingly expensive and hence education now costs much more than it did before. One of the ways the government controls prices is by setting a floor or a ceiling on the market.

Explain what might happen in the market for higher education if the government placed a price ceiling on the cost of one undergraduate credit hour. Explain your answers using economic theory on impacts of price ceiling on market equilibrium.

1. What are the impacts of pricing ceiling market equilibrium in education market?
2. Does it matter whether or not the ceiling is set above or below the equilibrium price?
3. Who might benefit from this price restriction? Who might be harmed from this price restriction?

Answer 1

A)Price ceiling is the regulatory policy which will restrict the force of demand and supply for determining the price of the goods and services.So if there is a price ceiling in the field of an education sector ,that means government will now control the prices of the cost of education , they will fix up the cost for higher education.Thus it will become affordable for everyone.Prices will be determined and set by the government and forces of demand and supply will have no longer effect in the education.
B)Yes,it matters whether the ceiling is set above or below the equilibrium price.If the price ceiling is below the the equilibrium line that means cost has become too less that means there is excess demand from students but suppliers of educational institutions are discouraged due to low prices .But if the price ceiling is above the equilibrium line then the situation is favourable to owners of educational institutions and students are demanding less.
C) Students offcourse will be benefited from this price restrictions and Owners of educational sectors will be harmed from this price ceiling.