(b) Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to the students enrolled in tertiary education in Gondolin. Who gains and who loses from such a subsidy? ******PLEASE ONLY ANSWER PART B****

Economics (MindTap Course List)
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ISBN:9781337617383
Author:Roger A. Arnold
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Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
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Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education.
(a) Depict, with the help of a figure, the initial market for tertiary education in
Gondolin, assume that: 1) education was left to the competitive free market; 2)
the marginal private benefit is equal to the marginal social benefit; 3) the
marginal private cost is equal to the marginal social cost. Now describe, using
the help of the figure, the effect of the government subsidy on the price and
quantity traded of tertiary education, where the X axis of the figure should be
the quantity of students enrolled in tertiary education. You do not need to use
actual numbers – focus on the direction of change in price and quantity traded
caused by the subsidy.
(b) Identify the area of the figure you drew in (a) that depicts the total size of the
subsidy paid by the government to the students enrolled in tertiary education in
Gondolin. Who gains and who loses from such a subsidy?

******PLEASE ONLY ANSWER PART B****

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