Question

Answer the questions below. Write detailed explanations.

a) If BU’s budget increases because of a tuition increase, will the budget constraint and the PPF be affected? Explain why or why not using graphs.

b) What is the main conclusion of Hanushek at al (2008) article uploaded under “Articles in the Syllabus” and covered in class? What does it say about the effectiveness of compulsory schooling laws? Note: Compulsory Schooling Laws require students to be in school till a certain age.

Answer 1

Answer (a) :

When BU’s budget increases because of tuition increase, the budget constraint and the Production possibility frontier will both get affected. This is because, the increase in budget will increase the availability of funds in the hands of a consumer. This is increase in the funds will destabilize the consumers budget s=constraint. As shown in the above figure, the Original budget constraint AB may now change to AC or BD with the preference of the consumer to choose any particular product over other or more of a product with the change in the available funds in the hand of the people. Similarly, the Production possibility Frontier (PPF) will also be affected, as with the increase in the budget, the capital in the hands of the firms. With the increased capital, the production function of the goods alpha and Beta will change and they many now be produced more or less depending on which sector he invest would want to allocate more capital or funds in to. Here, the PPF1 curve may shift to PPF2 curve with the increase in the spending of the firms over their production.

Answer (b) : The crux of Hanushek at al goes with the schooling law in a country where every child in a nation must be mandated to attain a certain level of primary education. This is because, Hansel believed that it is ignorance which is at the grass root level of the issues that that we daily face in our society and economy. Hansel believed that most of the social crimes committed are due to the lack of basic education among the masses. Hence it must be mandatory for every child to attain a basic level of education until a specific age so that he or she does not lack the basic knowledge and values in the society. Hansel further went on to add that it is the responsibility of the Government to ensure that this law is being strictly implemented among the education department and that the necessary budget for this law should be facilitated to the required authorities.