Question

A private college has several study programs. Recently there was a publication from BPS stating that the income of the middle class has increased by 10% this year. Although happy with the improving condition, the university is concerned that the impact of this change on applicants who will continue to the tertiary institution is estimated to decrease. From these concerns, what can we conclude about the study programs at these colleges? Complete the answers with graphic explanations.

Answer 1

Solution:-

Given that

From the presented information alone, we can conclude that tertiary education is an inferior good.

Inferior goods have negative income effect - demand falls when income rises because "superior" goods become available for consumption. Here the superior good is leisure;

(Makes sense intuitively;

with increase in stable source of income people are less motivated to deal with the gross inefficiencies in the educational system for 2+ years in a bid to increase future-pay;

instead they'll prefer to enjoy more of the finer things in life

e.g. ice cream and movies)

B1 is the original budget line.

B2 is the new budget line, shifted outwards parallel to B1

income increases, demand for education decreases

characteristic feature of inferior goods

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