ACJC_H1_ECONS_P1_Qn1

1 ©ACJC2017 Preliminary Exam 8819/01 [Turn over H1 Economics 8819 Paper 1 Question 1: Suggested Markscheme Question 1: The Market for Higher Education (a) With reference to Table 1, compare the government expenditure per student for primary and university education from 2012 to 2015. [2]  Both government expenditure per student for primary level and university have generally increased from 2012 to 2015. [1]  Government expenditure per p rimary school student is always lower than university expenditure per student. [1] OR  Both government expenditure per student for primary level and university have generally increased from 2012 to 201 4 but for 2015, university expenditure per student has fallen while expenditure per p rimary school student continued to increase. [1] (b) With the aid of a diagram and using demand and supply analysis, explain two reasons for the expected increase in UK’s university tuition fees. [4] With references to Extract 2,  The increase in birth rates in UK  leads to the r ise in demand for university education  increase in DD (shift right from DDo to DD1) [1]  Cut in government s ubsidies for universities leading to higher COP for universities.  Decrease in SS (shift left from SSo to SS1) [1]  A shortage (of (QssQdd amount at initial price level of Po ) will occur in the market [1]  lead to an increase in price of university education (from Po to P1)  Diagram [1] 1m – DD factor 1m – SS factor 1m – price mechanism linking to shortage 1m – diagram (c) (i) With the aid of a diagram and with reference to Extract 1, explain how social outcomes associated with higher levels of educational attainment can lead to market failure. [6] [6]  Diagram to show how positive externalities associated with higher

2 ©ACJC2017 Preliminary Exam 8819/01 educational attainment can lead to under consumption and market failure (assume: no negative externality, thus MPC = MSC)  With reference to the extract, e xplain the positive external benefits that arise from higher educational attainment and relate it to the third parties. o According to Extract 1 , higher level of educational attainment can lower poverty and crime rates, creating a society that is more cohesive and safer for households. It also improves the quality of the labour force that is beneficial for economy long-term economic development, imp roving the standard of living of the future generations as well. These are some of the external benefits to the third parties.  Explanation of the market equilibrium o Individuals who seek to attain higher level of education only take into account their private benefits (such as the higher employability and wages earned) and private costs (such as the tuition fee for higher level education, time needed to graduate from higher educational etc.) o T