Log out Go to App
Go to App

Learning Materials

Features

Discover

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’ and students’ 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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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?

Suppose that the current price of a tablet device is \(300 and that people are buying 1 million devices per year. The government decides to begin subsidizing the purchase of new tablet devices. The government believes that the appropriate price is \)260 per tablet, so the program offers to send people cash for the difference between \(260 and whatever the people pay for each tablet they buy.

(a) If no consumers change their tablet-buying behavior, how much will this program cost the taxpayers?

(b) Will the subsidy cause people to buy more, fewer, or the same number of tablets? Explain.

(c) Suppose that people end up buying 1.5 million tablets once the program is in place. If the market price of tablets does not change, how much will this program cost the taxpayers?

(d) Under the assumption that the program causes people to buy 1.5 million tablets and also causes the market price of tablets to rise to \)320, how much will this program cost the taxpayers?

Suppose that the U.S. government determines that cigarette smoking creates social costs not reflected in the current market price and equilibrium quantity of cigarettes. A study has recommended that the government can correct the externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. It also recommends raising the funds to make these payments by increasing taxes on cigarettes. Assuming that the government is correct that cigarette smoking creates external costs, evaluate whether the study’s recommended policies might help correct this negative externality.

Distinguish between private goods and public goods and explain the nature of the free-rider problem.

Could negative externalities from drone flights be addressed if it were

possible for people to negotiate prices at which drone owners would pay

explicit fees for the right to fly drones above people's properties?Explain

your reasoning
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free