A government is considering two alternative plans for providing subsidy to private schools. Under the first plan it offers to let a number of students at a public school transfer to a private school under two conditions: It will transmit to the private school the same per-pupil subsidy it currently provides the public school, and the private school will be required to admit the students at a below market tuition rate. Under the second plan, the government will simply provide the students with grants to cover the current market tuition rate at the private school. (Hint: Does it matter if schools receive payments directly from the government or from the consumers?) The outcomes of the two plans ...

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Business

Karina Miranda

15 August, 12:21

A government is considering two alternative plans for providing subsidy to private schools. Under the first plan it offers to let a number of students at a public school transfer to a private school under two conditions: It will transmit to the private school the same per-pupil subsidy it currently provides the public school, and the private school will be required to admit the students at a below market tuition rate. Under the second plan, the government will simply provide the students with grants to cover the current market tuition rate at the private school. (Hint: Does it matter if schools receive payments directly from the government or from the consumers?) The outcomes of the two plans ...

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Kinsley Simon · Answer 1

The correct answer is B. will be different; under the first plan where a private school directly receives the subsidy, it will provide a quantity of educational services in excess of the market equilibrium quantity.

Explanation:

Economically, a subsidy is applied to artificially stimulate the consumption or production of a good, product or service, and has its origin in the intention of the states to achieve social goals or to favor certain people, activities or areas of a country, although its main purpose is to prevent possible increases reach the final consumers of products, goods or services, and thus protect the national economy.

A subsidy is the difference between the real (higher) price of a good, product or service in the production center and the real (lower) price charged to the consumer in the market. In the direct subsidy a part is paid to some consumers. In the best case, this subsidy appears within the invoice as a reduction to the normal price, indicating who pays it and what is the basis of the calculation.

It is important that a subsidy covers one hundred percent of the products and goods whose importation has been replaced by national production in terms of units; and with regard to values, the subsidy must cover the surplus of what would be invested in its importation to avoid its shortage and scarcity, and that the remedy of promoting national production is worse than the disease of continuing to import at high prices.