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Chapter 5: Q 12 (page 121)

After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents鈥� and students鈥� valuations of the services provided at both private and public schools adjust to equality with

the true market price of educational services. Is anyone likely to lose out nonetheless? If so, who?

Short Answer

Expert verified

The government will lose its revenue equivalent to the amount of grants but other than that no one suffers any loss.

Step by step solution

01

Step 1. Definition of Market Equilibrium.

Market equilibrium is the point where the market demand equals market supply for any commodity.

02

Step 2. Is the grant a loss for anyone?

The government provides grants to the students so they will pay fees equal to the market equilibrium price. There will be no change in the demand and supply in the market. The government will only lose its revenue equivalent to the amount of the grants. Since this is a positive externality this small loss is justified.

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Most popular questions from this chapter

Many economists suggest that our nation's legal system is an example of a public good. Does the legal system satisfy the key properties of public good? Explain your reasoning.

Suppose the panel (a) of the figure applies to Pennsylvania's steel market. Suppose that steel manufacturer in this state adopts a new technique for producing steel that entails a smaller external cost. In the absence of any government action to correct the negative externality from steel production, would the overallocation of resources to steel production in Pennslyvania be larger or smaller following the adoption of the next steel-manufacturing technique?

Analyze how public spending programs such as Medicare and spending on public education affect consumption incentives.

Would a government find it easier or harder to raise funds for a public good that all people value similarly but that current government officials possess varying capabilities to provide?

A nation鈥檚 government has determined that mass transit, such as bus lines, helps alleviate traffic congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways. Nevertheless, even though several private bus lines are in service, the country鈥檚 commuters are failing to take the social benefits of the use of mass transit into account.

(a) Discuss, in the context of demand-supply analysis, the essential implications of commuters鈥� failure to take into account the social benefits associated with bus ridership.

(b) Explain a government policy that might be effective in achieving the socially efficient use of bus services.
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