Access the article at the URL given above and answer the questions in the spaces below. Use full sentences and show all necessary working but do not use more space than is given here. Other references are not necessary but, if you do use any (for example, online economics glossaries) please list at least the URL of your source. Marks are shown and total [15].
(1) According to the article the price of a degree is rising, “as a result of falling Government subsidies”. Use a simple demand and supply diagram below to explain the effects on the price of a degree in the above scenario.
Subsidies provided by government plays an important role of making degree education affordable to many. However, when the government scales back subsidies for university education, the cost of acquiring degree increases. This situation reduces the number of students who are enrolling for the academic degree. As a result, the supply of degrees in the market will decline and thus beocme expensive. On the graph above, a decrease in the supply of degrees is shown by the change in the supply curve from S to S1. The number of university degrees reduces from Q* to Q1 while the price of degree increases from P* to P1.
(2) The article claimed that “when firms are hungry for skilled workers, their demand for university graduates grows”. Explain, using the diagram below, the effects on the market in the above scenario.
When the need for skilled workforce increases, the demand for university graduates soars. On the figure above, the increase in demand for graduates is demonstrated by the change in demand curve from D to D0. This change results in a rise in the number of graduates demanded from Q* to Q0. Consequently, the price of degrees will increase, that is, move from P* to P0. The increase in price is caused by a shortage since the demand exceeds the supply.
(3) Explain what a college wage premium is and what the causes are of a “relatively flat” college wage premium in Europe.
Meaning of College Wage Premium
College wage premium refers to wage differences between employees with a graduate or college degree and those with solely a high school degree. Usually, workers with a graduate degree are known to earn higher wages than the high school graduate employees.
Cause of Relatively Flat College Wage Premium
A large number of graduates in the recent years in Europe is one of the factors that has contributed to relatively flat college wage premium. Thus, it means that the supply of university graduates is increasing faster than the demand making the college wage premium to stabilize. Furthermore, the generous minimum wages are also contributing to the flattening of college wage premium. The minimum wage reduces the disparities between low and highly paid workers.
(4)According to the article is a university degree considered a good investment? Why or why not?
According to the article, a university degree is a good investment. Foremost, the employees who have degree earn higher incomes compared to those workers that are less educated. Therefore, a student will get a good return for venturing in university education. Also, statistics show that unemployment rate for the graduates are low in the United States and among the Europeans countries. Hence, a student who pursues university education increases his or her chances of getting employment.
