(2023) A Level H2 Econs CSQ 1 Suggested Answers
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2023 A Level CSQ1 Suggested Answers Outline
a.
A graduate in the US with a Bachelor’s degree is likely to earn, on average, 67% more than a school leaver with a High school diploma.
A graduate in the US with a Bachelor’s degree is also less likely to be unemployed (5.5%) compared to a school leaver with a High school diploma (9%)
(You can also frame it in terms of ease of finding a job)
b.
(We draw a demand and supply of labour diagram here)
Extract 1 suggest an increase in the number of students undertaking higher education which include both an increase in supply of both workers with Bachelor’s degree AND Professional degree.
We assume that the increase in supply of workers with a Bachelor’s degree is higher than the supply of workers with a professional degree. Extract 3 mentions that the additional training required for jobs like doctors (which is a professional degree).
This will lead us to reason that, there is a higher supply of workers with Bachelors degree (supply curve on the right), then the supply of workers with a Professional degree (supply curve on the left)
This will result in wages of workers with a Bachelor’s degree to be lower than those with a professional degree.
Note: At the end of the day, you want to
1. Demonstrate a contrast in Pprofessional (higher) vs Pbachelors (lower)
2. Use info from Extract 1
c.
Opportunity cost is the next best alternative forgone.
When a student pursues education, a student forgo possible earnings that he/she could have earned if he/she was working instead of schooling.
The loss of such wages may result in families finding free schooling unaffordable.
d.
Asymmetric information refers to a situation where one party has more information than another party in the transaction of a good. In education, the two parties will likely be students (and their families) as well as education providers.
How asymmetric information may lead to wrong choices (Suggestion 1)
Students may decide to enroll at universities based on incomplete information. Colleges may publish information relating to employment rates or average salaries without disclosing full information (e.g. average salaries may not refer to the median salary).
Students may also not take into account hidden costs of obtaining university education (e.g. cost of accommodation, or opportunity costs such as wages forgone)
This may result in students over-estimating the benefits / under-estimating costs of selecting a specific course / university and enrolling in a mis-aligned course of choice instead.
How asymmetric information may lead to wrong choices (Suggestion 2)
Education institutions when accepting students, tend to conduct admission interviews / standardised tests to gauge the abilities of students (whether they could excel or contribute positively to the university environment)
Students could prepare for such interviews or standardised tests but this may not be a good reflection of the student’s actual academic potential or ability to contribute.
This may result in universities offering places to students who are less likely to succeed or contribute positively to the university environment.
e.
In Table 1, we see that the social return (% per year) for primary education is higher than that of secondary and higher education.
Yes, government should concentrate this increase in spending on primary education
Positive externalities in education result in underconsumption of education.
The external benefits of education can include higher tax revenues derived from individuals with higher education, lower mortality rates and lower crime (these all have an impact on society at large due to differences in taxes, healthcare costs and incarceration costs).
Table 1 suggest that an extra dollar spent on primary education will yield a higher return in terms of external benefits that will be realised compared to secondary and higher education.
Thus, it would make sense to concentrate the increase in spending on primary education from an efficiency viewpoint.
No, government should not concentrate this increase in spending on primary education
No, it's not advisable for the government to focus the increase in spending solely on primary education. Although prioritizing primary education might seem efficient when compared to secondary and higher education, it's important to acknowledge that secondary and higher education generally incur higher costs and, consequently, higher fees.
These elevated fees for secondary and higher education can make it challenging for families with lower incomes to afford and access these levels of education.
Therefore, considering equity issues, it's essential for the government to also allocate increased funding towards secondary and higher education.
Additional evaluation to consider: Discussion about macroeconomic benefits of increased potential growth from a more skilled labour force (with more spending on higher education)
f.
The government's objective is to ensure both equity and efficiency in the allocation of resources. Therefore, the government should aim to address both market failures and equity issues in education.
Market failure in education
Market failures arise in education due to positive externalities and imperfect information.
Education not only benefits the individual receiving it but also the society at large through various means like increased productivity, better civic engagement, and lower crime rates. However, because these societal benefits are not directly captured by the individuals or institutions providing education, the market may underprovide education, leading to a socially suboptimal level of education.
Imperfect information in the education sector often revolves around a lack of awareness among families and students about the true long-term benefits of education, especially in terms of increased future earnings. Many students and their families might not fully grasp how higher levels of education correlate with better job prospects, higher salaries, and improved lifetime earnings. This gap in understanding can lead to underinvestment in education. Without a clear perception of these future benefits, students may undervalue education, especially higher education, and choose not to pursue further studies.
To correct this underconsumption of education, the government can intervene through policies like subsidies. Subsidies lower the cost of education for students, encouraging more individuals to pursue further education and thus moving consumption closer to the socially optimal level.
Equity in education
Underconsumption of education is even more pronounced in the case of lower-income households. Their access to education is more restricted due to factors such as financial constraints, lack of information about the long-term benefits of education, and possibly fewer educational resources in their communities.
By improving access to education for lower-income households, the government can address these significant distributional issues. Enhancing the educational opportunities for children from these households not only corrects underconsumption of a merit good but also works towards a more equitable distribution of educational benefits. It helps in leveling the playing field, allowing individuals from lower-income backgrounds to have better prospects for future earnings and improved socio-economic status.
Government intervention to address market failure can also result resolve equity issues in education
Addressing market failures through interventions like subsidies can also help in addressing equity issues. For instance, by making education more affordable, subsidies help to ensure that lower-income families can access educational opportunities, thereby promoting a more equitable distribution of educational resources.
Evaluative conclusion
A possible refinement to this approach is to offer a higher degree of subsidies to lower-income families. This targeted approach ensures that those who need financial support the most receive it, thereby making the intervention more effective in addressing both market failures and equity concerns.
In summary, the government should aim to address both efficiency and equity in the education market. While market failures justify intervention to improve economic efficiency, equity concerns call for interventions to ensure fair access to education. Addressing market failures can also contribute to resolving equity issues, and policies like subsidies can be fine-tuned to target those in greatest need, ensuring a more balanced and effective approach to government intervention in the education market.
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