Now let's introduce scholarships. These act as a subsidy by driving a wedge between the price that students pay for tuition and the amount that the university receives. In particular, we say that ps = p + B, where B is the "size" of the scholarship. Our new equilibrium condition is that 3ps = 40-pD. Substitute the identity for ps in terms of pD into the equilibrium condition (making sure to distribute the 3 correctly) and solve for equilibrium prices (with B still on the right-hand side). Next, plug ps into qs or pD* into qº to obtain the equilibrium number of students enrolled in terms of B. If the university seeks to enroll 33 (thousand) students, we In this case, we have ps* = $ must have B* = $ and pD* = $ If the university instead seeks to enroll 36 (thousand) students, we must have B** = $ . In this case, we have ps" = $ and pD** = $
Now let's introduce scholarships. These act as a subsidy by driving a wedge between the price that students pay for tuition and the amount that the university receives. In particular, we say that ps = p + B, where B is the "size" of the scholarship. Our new equilibrium condition is that 3ps = 40-pD. Substitute the identity for ps in terms of pD into the equilibrium condition (making sure to distribute the 3 correctly) and solve for equilibrium prices (with B still on the right-hand side). Next, plug ps into qs or pD* into qº to obtain the equilibrium number of students enrolled in terms of B. If the university seeks to enroll 33 (thousand) students, we In this case, we have ps* = $ must have B* = $ and pD* = $ If the university instead seeks to enroll 36 (thousand) students, we must have B** = $ . In this case, we have ps" = $ and pD** = $
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.1P
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Transcribed Image Text:Now let's introduce scholarships. These act as a subsidy by driving a
wedge between the price that students pay for tuition and the amount
that the university receives. In particular, we say that ps = p + B, where
B is the "size" of the scholarship. Our new equilibrium condition is that
3ps = 40-pD.
Substitute the identity for ps in terms of pD into the equilibrium
condition (making sure to distribute the 3 correctly) and solve for
equilibrium prices (with B still on the right-hand side). Next, plug ps into
qs or pD* into qº to obtain the equilibrium number of students enrolled
in terms of B. If the university seeks to enroll 33 (thousand) students, we
In this case, we have ps* = $
must have B* = $
and pD* = $
If the university
instead seeks to enroll 36 (thousand) students, we must have B** = $
. In this case, we have ps" = $
and pD** = $
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