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Question 问题
Suppose that the government decides that the market price for university education is too high, therefore, it decides to set a limit to how much the university can charge in tuition fees. The new mandatory limit is 5000. 假设政府认为大学教育的市场价格过高，因此决定限制大学收取学费的数额。新的强制性限额是5000。
(a) How do the supply and demand curves change? Make use of a graph 供需曲线如何变化？利用图表做题
The legal maximum price of tuition fees is the price ceiling. The price ceiling is less than the equilibrium price or the market price. On the one hand, since the price of tuition fees decrease, the demand of university education will increase. On the other hand, since the price of tuition fees decrease, the supply of university education will decrease. In other words, when there is price ceiling, the supply curves will shift to left, and demand curves will shift to right. 学费的法定最高价格是学费的最高限价。价格上限小于均衡价格或市场价格。一方面，随着学费价格的下降，大学教育的需求也会增加。另一方面，随着学费价格的下降，大学教育的供给也将减少。换句话说，当有价格上限时，供给曲线将向左移动，需求曲线将向右移动。
(b) What is the new price and quantity in equilibrium? 均衡的新价格和数量是多少？
When there is price ceiling of tuition fees, the supply of the university education will decrease. In other words, when all quantity of university education enters into the market and the consumers decide the tuition fees by competition, the new equilibrium price will be P2, which is higher than the original equilibrium price. 当学费有上限价格时，大学教育的供给将减少。 换句话说，当所有大学教育数量进入市场并且消费者通过竞争决定学费时，新的均衡价格将是P2，高于原始均衡价格。
(c) Describe who will benefit and who will suffer from this new policy. 描述谁将受益以及谁将受益于这项新政策。
The aim of the price ceiling of tuition fees is to benefit the consumers. However, the interventions of the price ceiling create shortages of university education. Thus, the regular consumers will suffer from this new policy, that is, regular consumers will queues, discrimination and off the books deal. In addition, the price ceiling will suffer the real producers and services of the university education. 学费价格上限的目的是使消费者受益。 然而，价格上限的干预造成了大学教育的短缺。 因此，普通消费者将遭受这一新政策，即常规消费者将排队，歧视和书籍交易。 此外，价格上限将受到大学教育的真正生产者和服务的影响。
On the other hand, the price ceiling will benefit people who set the price ceiling. Moreover, the price ceiling will benefit the law executor, the people who master the quota. What’s more, the price ceiling will benefit the professional bribe and lobbyists. 另一方面，价格上限将使设定价格上限的人受益。 此外，价格上限将使法律执行人，掌握配额的人受益。 更重要的是，价格上限将有利于专业贿赂和游说者。
Question
The government suspects that the price policy just introduced might in fact be detrimental. It therefore decides to review it and for this purpose hires three economists. The three economists suggest three different policies aimed at improving market outcomes in the presence of price controls:
Answers:
(1) The consequences of the policy of starting a public campaign to highlight the benefit of university education are shown as follow. The pubic campaign will increase the quantity demanded of university education. The demand curves of university education will shift to right. However, there is price ceiling, the supply of the university education will not change.Thus, the new equilibrium price could be P3, which is higher than the original equilibrium price P2, which will suffer the consumers.
(2) The consequences of the policy of starting tax rate of 20% on universities are shown as follow. The taxes will discourage the activity of university education market. With the price ceiling, the price will not change. However, when there is taxes on university education. The universities will receive less, and the supply of university education will decrease. With the price ceiling, the new equilibrium price could be P4, which is higher than the original equilibrium price P2, which will suffer both the consumers and universities.
(3) The consequences of the policy of giving a subsidy to universities are shown as follow. A subsidy is the opposite to a tax, which will encourages consumption and provides of university education. When there is subsidy to universities, the supply of the university education will increase, that is, the supply curve of university education will shift to right. The demand curve of university will not change. With subsidy to universities, the new equilibrium price could be P5, which is less than the original equilibrium price P2, which will benefitboth the consumers and universities.
To sum up, when there is price ceiling, the public campaign to highlight the benefit of university education will damage the interest of consumers. The tax rate of 20% on universities will damage the interest of both consumers and sellers (universities). However, the subsidy to universities will both benefit both consumer and seller (universities). Thus, I will chose the policy of giving a subside to universities.
Question
The short run for firms’ production decision refers to in this period, one or more inputs are fixed, and the change of product and cost are entirely the results of the changes of change factors. In other words, the short run decision refers to the cycle management of actual production. However, for the long run decision of firms’ production, in this period, all inputs are changing. Thus, the long run decision can be regarded as the planning level on future production. The main difference between the short and long run decision lies in whether the inputs are change or not.
For the short run decision, the decision factor is law of diminishing marginal returns. A shutdown refers to a short-run decision not to produce anything during a specific period of time because of current market conditions. Thus, firm will shuts down if the revenue getting from producing is less than the variable cost of production. According to the following graph, the E point is the profit equilibrium point, and H is the shutdown point. In other words, when price is less than AVC (average variable cost), the firms should leave the market.
For the long run decision, the decision factor is relationship between the revenue and total cost. If the revenue is less than the total cost, the firm should exit. According to the following graph, the E point is the exit point.In other words, when price is less than ATC (average total cost), the firms should leave the market.
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