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Suppose we live in a small island country that has just one higher education institution: a private university. The supply and demand for enrollment in this market are given by the equations:
P = 9000 - 3QD
P = 1000 + QS
a. Suppose this market is initially in equilibrium at a price of $3000 and a quantity of 2000 students. The government decides they want more people to get educated, so they set a price ceiling on tuition at $2400. Find the market outcome (using the equations), explain it briefly in words, and sketch a graph of the situation.
b. Suppose the price ceiling is put in place and the market outcome found in part a occurs. If we decided to start our own black market college on the island to avoid this price control, what price would we initially be able to charge? (Note: for the sake of this example, assume the quality of education and value of a degree from our sketchy college will be equivalent to that of the private university).
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