Question

Supply and demand analysis is one approach for explaining why prices are what they are at any given time. Present an analysis (a supply and demand diagram and accompanying “story”) that explains why the price of a college degree has increased significantly over the past 40 years. (You can choose any shock you think may be the cause.) Your analysis should also include a prediction of the change in the number of college degrees granted. Use your analysis to comment on whether you think there is some policy government could implement to slow the rate at which the price of a college degree increases.

Answer 1

The price for college degree is shown by P and students to be enrolled is Q, before 40 years and at present the price is increased to P' and quantity of students to increase to be Q'. It is due to the reason that there is a increased in demand for the college degree, as a result of access to new markets to sell the college degree, increase in income of the consumers to afford the college degree education and different types of courses being launched by the colleges and universities so that students can pursue a superior career after completing this college degree. It has worked to be a positive demand shock in the market and demand curve have shifted from D to D'. As a result, price also increased from P to P' and increase in number of students enrolled from Q to Q'. It is the reason for the increase in price of college degree in present scenario. On the basis of increase in demand, the number of colleges has also increased the quantity supplied and its movement is along the curve.