Question

Senator Smith makes the following statement. "To fight the ever rising cost of attending college I propose we pass a law limiting the amount that colleges can charge. As a result more people will be able to attend college which will foster prosperity in this great land of ours." Briefly evaluate Smith's statement making use of the tools and terminology you learned in this class.

Answer 1

Answer) What Senator Smith is proposing here is to put a price ceiling that is the maximum amount college can charge is capped which means colleges cannot charge more than a certain amount,what it also implies is that essientiely government is interfering in the market,now Senator Smith believes it will allow more people to attend college and therefore will lead to prosperity for the area,we will analyze this statement from three perspectives producers or college in this case,consumers or students in this and market or all the participants as an ecosystem,when we think from producers viewpoint,the idea is going to hit them badly as they cannot keep price beyond a point,however to reudce their costs they may start compromising on quality,say students may not get to visit on practical company tours or they may not get access to best faculty as college will look to cut costs but producers or college will face losses owing to this,for consumers or students there is definite benefit of less costs,however as described above there is a loss in terms of access to quality of education or facilities,for market this is not an ideal situation as concept of demand and supply take a backseat leading to more and more demand but college having limited seats as well as cost cutting from college,so when we look from all perspectives this may not be an ideal solution,this could be a popular solution but an ideal solution could involve raising standard of education across colleges so a healthy competition develops and there is not just one college,in terms of capping,government could look at where costs can be saved and probably giving an option to students to opt for something or not and thereby not creating market inefficiency.

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