EJC Econs 2023 A-Level H2 P1 Q1 - students

Suggested Answers for 2023 A-Level H2 P1 Qn 1: Costs and benefits of education (a) With reference to Figure 1, compare the potential benefits for a graduate in the US with a Bachelor’s degree to a school leaver who has a High School Diploma. [2] An average graduate in the US with a Bachelor’s degree has higher weekly earnings compared to an average school leaver who has a High School Diploma. An average graduate in the US with a Bachelor’s degree should also expect to experience a lower probability of unemployment compared to an average school leaver who has a High School Diploma (b) With reference to Extract 1 and using a supply and demand diagram, explain one possible reason for the higher average earnings of graduates with a Professional degree compared to those with a Bachelor’s degree. [3] According to Extract 1, the marginal private cost of higher education, comprising tuition fees, other costs like travel and wages foregone, are substantial. As a result, due to the higher costs involved in attaining a Professional degree compared to a Bachelor’s degree, individuals are less willing and able to undertake a Professional degree and supply their labour at each wage level. Figure 1 The supply of graduates with a Professional degree is thus lower than that with a Bachelor’s degree as shown below. Assuming that demand for labour remains the same at DD0, equilibrium wage of graduates with a Professional degree, W P, is higher than that of graduates with a Bachelor’s degree, WB. (c) ‘Opportunity costs may make even free schooling unaffordable for some families’ (Extract 4) Explain one example of an opportunity cost that might make free schooling unaffordable. [3] Opportunity cost is defined as the value of the next best alternative that is foregone. According to Extract 4, “Parents may need their children to work to supplement the household income”. The opportunity cost of free schooling are the wages foregone by t he student if he attends school rather than going for work assuming that the next best alternative is going to school. The wages foregone could have been essential for the survival of the family in the short run, making free schooling unaffordable.

(d) Explain how asymmetric information may lead to wrong choices in the market for education. [4] Asymmetric information refers to a situation where one party in the economic transaction has more information than the other party. In other words, economic agents (e.g., consumers and producers) involved in the transaction do not have the same amount of knowledge, resulting in a distortion of incentives and inefficient market outcomes. As suggested by Extract 4, parents may have lower levels of information regarding the quality of education at a school compared to the teachers or the principal there. Parents thus perceive the benefits of education, an example being the possible higher wages their children may enjoy, to be