Suppose that households have one child each and an income of M per year to spend on their child's education and other goods. Each year they elect to either send their children to a Public School and receive $21,000 worth of education or to a Private School and pay $X to receive $14,000+$X worth of education. For example, if a household chooses to spend X=$5,000 on private education, then they receive $19,000 in education. Students Government Subsidy Fee Total Funding Public School 2.50 million $21,000 $0 $21,000 Private School 1.50 million $14,000 $X* $x*+$14,000 Assume that $ of education funding whether provided by Government Schools or Private Schools are perfect substitutes. Note that for the Private school option, the $14,000 is effectively added to income as a voucher (V), which households can top up with their own spending X on education. Note that households cannot spend more on other goods than their income (that is they may not exchange the Government funding for cash). All households have a utility function U-XY where X is $ of education their child receives, and Y is $ spent on non-essential goods. The values of a and b are provided below. The demand function for X is X(M+V) and the demand function for Y is Y(M+V), where M is income (disposable income after all essential spending) and V is any voucher paid Suppose there are: 1.00 million 1.50 million 0.75 million 0.75 million Type I households with M = $25,000, a=0.4 and b=0.6 Type II households with M = $50,000, a=0.4 and b=0.6 Type III households with M=$50,000, a=0.6 and b=0.4 Type IV households with M = $100,000, a=0.6 and b=0.4 Some advocates have proposed a pure-voucher system, where all current government education funding to both government and private schools would stop and be divided equally amongst all households. Advocates of the voucher system claim, "All households will be better off and it will result in a better level of education for all Australian students". Calculate the amount of education (X) and other non-essential goods (Y) for each household type and their Utility (U) for each of the four household types. Public School Household Type X Y III U X 21,000 50,000 35,340 IV 21,000 100,000 39,204 Private School Y Choice of School U 15,600 23,400 19,897 38,400 25,600 32,651
Suppose that households have one child each and an income of M per year to spend on their child's education and other goods. Each year they elect to either send their children to a Public School and receive $21,000 worth of education or to a Private School and pay $X to receive $14,000+$X worth of education. For example, if a household chooses to spend X=$5,000 on private education, then they receive $19,000 in education. Students Government Subsidy Fee Total Funding Public School 2.50 million $21,000 $0 $21,000 Private School 1.50 million $14,000 $X* $x*+$14,000 Assume that $ of education funding whether provided by Government Schools or Private Schools are perfect substitutes. Note that for the Private school option, the $14,000 is effectively added to income as a voucher (V), which households can top up with their own spending X on education. Note that households cannot spend more on other goods than their income (that is they may not exchange the Government funding for cash). All households have a utility function U-XY where X is $ of education their child receives, and Y is $ spent on non-essential goods. The values of a and b are provided below. The demand function for X is X(M+V) and the demand function for Y is Y(M+V), where M is income (disposable income after all essential spending) and V is any voucher paid Suppose there are: 1.00 million 1.50 million 0.75 million 0.75 million Type I households with M = $25,000, a=0.4 and b=0.6 Type II households with M = $50,000, a=0.4 and b=0.6 Type III households with M=$50,000, a=0.6 and b=0.4 Type IV households with M = $100,000, a=0.6 and b=0.4 Some advocates have proposed a pure-voucher system, where all current government education funding to both government and private schools would stop and be divided equally amongst all households. Advocates of the voucher system claim, "All households will be better off and it will result in a better level of education for all Australian students". Calculate the amount of education (X) and other non-essential goods (Y) for each household type and their Utility (U) for each of the four household types. Public School Household Type X Y III U X 21,000 50,000 35,340 IV 21,000 100,000 39,204 Private School Y Choice of School U 15,600 23,400 19,897 38,400 25,600 32,651
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Suppose that households have one child each and an income of M per year to spend on their child's education and other goods. Each year they elect to either send their children to a Public School and receive $21,000 worth of education
or to a Private School and pay $X to receive $14,000+$X worth of education. For example, if a household chooses to spend X=$5,000 on private education, then they receive $19,000 in education.
Students
Government
Subsidy
Fee
Total Funding
Public School
2.50 million
$21,000
$0
$21,000
Private School
1.50 million
$14,000
$X*
$x*+$14,000
Assume that $ of education funding whether provided by Government Schools or Private Schools are perfect substitutes. Note that for the Private school option, the $14,000 is effectively added to income as a voucher (V), which households
can top up with their own spending X on education. Note that households cannot spend more on other goods than their income (that is they may not exchange the Government funding for cash).
All households have a utility function U-XY where X is $ of education their child receives, and Y is $ spent on non-essential goods. The values of a and b are provided below. The demand function for X is X(M+V) and the demand
function for Y is Y(M+V), where M is income (disposable income after all essential spending) and V is any voucher paid
Suppose there are:
1.00 million
1.50 million
0.75 million
0.75 million
Type I households with M = $25,000, a=0.4 and b=0.6
Type II households with M = $50,000, a=0.4 and b=0.6
Type III households with
M=$50,000, a=0.6 and b=0.4
Type IV households with
M = $100,000, a=0.6 and b=0.4
Some advocates have proposed a pure-voucher system, where all current government education funding to both government and private schools would stop and be divided equally amongst all households. Advocates
of the voucher system claim, "All households will be better off and it will result in a better level of education for all Australian students".
Calculate the amount of education (X) and other non-essential goods (Y) for each household type and their Utility (U) for each of the four household types.
Public School
Household Type
X
Y
III
U
X
21,000
50,000
35,340
IV
21,000
100,000
39,204
Private School
Y
Choice of School
U
15,600
23,400
19,897
38,400
25,600
32,651
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education