Many State Governments Support Higher Education Through Subsidies

question 14

Essay

Many state governments support higher education through subsidies.(A subsidy is like a negative excise tax).Consider the following supply and demand for college education at State U,which shows the equilibrium that would prevail without subsidies: annual tuition is $20,000 with Q₀ enrolled students.Suppose the state provides a $10,000 per year subsidy paid to State U for each student enrolled.What impact will this subsidy have on the equilibrium tuition level and number of enrolled students? Explain.

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