The article by Norton A.
(2016) provides anoverview of higher education policy and trends including enrolment numbers,courses chosen by local and international students as well as enrolment trendsand employment outcomes in science, IT and engineering. This paper, firstly, throws lights on marketanalysis as well as demand and supply analysis. Secondly, it explains theconcept of price elasticity of demand and its types. Lastly, it provides a deepanalysis of positive and negative externalities and it also explains whethereducation providers are positive or negative externalities and why. · Market & Demand and Supply analysis:PerfectCompetition: In the givenscenario, there is perfection competition in the market as it satisfies thedefinition of Perfect Completion Market system because there are many sellers,(40 full universities and around 130 other higher education providers) andbuyers (nearly 350,000 international and one million domestic students) in themarket.
Mankiw & Taylor (2011) stated that with so many market players, itis impossible for any one participant to alter the prevailing price in themarket. Demand andSupply analysis:Norton A. (2016) stated that in engineering, Australia’s higher education system isperforming very well as demand and supply of engineering places respond tolabour market conditions, although the time taken to complete degreesinevitably means periodic under- or over-supply of graduates. In spite offluctuation in demand for engineers, engineering graduates find high-skill jobsmore easily as compared to STEM graduates. So, it can be said that there isenough market supply to meet market demand (Mankiw & Taylor 2011). So, in this case, equilibrium is the point where the quantity demanded equals the quantitysupplied. This means that there’s no surplus of professionalsand no shortage of jobs.
The given diagram clearly illustrate the relationshipbetween demand and supply for engineers. In the case of ITProfession, universities are not supplying the graduates to meet the demand of fast-moving industry. It means demand ishigher than supply. So, the new equilibriumpoint will be above than the old point, as shown in the following diagram and thereis negative relationship between demand and supply (Mankiw & Taylor 2011). In science, the labour market is over-supplied withcoursework graduates.
The number of science graduates is higher than forengineering or IT, but the number of jobs are lower. In other words, supply ishigher than demand. So, Mankiw & Taylor (2011) stated that there isnegative relationship between Demand and Supply and the new equilibrium point is lower than the old point, as shown in the following diagram andthere in unemployment in this sector. · Price Elasticity of DemandGaetan & Bruno (2012)stated that Price elasticity of demand occurs when thevariation in demand leads to a variation in price. It can also be defined asthe ratio of the percentage change in demand to the percentage change in priceof particular commodity. Theformula for the coefficient of price elasticity of demand is given below: Types of Price Elasticity ofDemand:Ø Perfectly Elastic Demand:Robert(2008) agued that when a small change in price of a product causes a majorchange in its demand, it is said to be perfectly elastic demand. In perfectlyelastic demand, a small rise in price can lead to fall in demand to zero, whilea small fall in price causes increase in demand to infinity.
Ø Perfectly Inelastic Demand:Gaetan & Bruno (2012) stated that a perfectly inelastic demand occurs when there is nochange produced in the demand of a product with change in its price. Thenumerical value for perfectly inelastic demand is zero (ep=0). Ø Relatively Elastic Demand:Relatively elastic demand means the demand when theproportionate change produced in demand is greater than the proportionatechange in price of a product. The value of relatively elastic demand rangesbetween one to infinity (Robert 2008). Ø Relatively Inelastic Demand: Gaetan& Bruno (2012) stated that relatively inelastic demand refers to demand when thepercentage change produced in demand is less than the percentage change in theprice of a product. The numerical value of relatively inelastic demand ranges between zero to one (ep<1). Ø Unitary Elastic Demand: Robert (2008) argued that when theproportionate change in demand produces the same change in the price of theproduct, the demand is referred as unitary elastic demand.
The numerical valuefor unitary elastic demand is equal to one (ep=1). In the givencase, the price elascity of demand for Engineers seems Unitary Elastic Demand. · Externality Analysis: James & Stubblebine (1962) stated that, in economics, an externality refers to the cost orbenefit that affects a party who did not choose to incur that cost or benefit. Forexample, manufacturing activities that cause air pollution impose health and clean-up costs on the wholesociety. Ø NegativeExternality:A negative externality meansan economic activity that can impose a negative effect on an unrelated thirdparty. It may arise either during the production or the consumption of a goodor service (Varian 2010). The graph shown above describes the effects of a negativeexternality.
Let’s take the example of steel industry and it is sellingin a competitive market – before pollution-control laws were imposed. Themarginal private cost is less than the marginal social or public cost by theamount of the external cost (the cost of air and water pollution). This is illustrated by the vertical distance between thetwo supply curves. It is supposed that there are no external benefits, so inthis case that social benefit equals individualbenefit.
If the consumers only take into account their own private cost, theywill end up at price Pp and quantity Qp,rather than the more efficient price Ps andquantity Qs. These latter reflect the idea that themarginal social benefit must be equalthe marginal social cost, that is that production should be increased only as long as the marginalsocial benefit exceeds the marginal social cost. The result is that a free market is ineffective since at thequantity Qp, the social benefit is less than the socialcost, so society as a whole may be better off if the goods between Qp and Qs hadnot been produced, but the problem is that people are buying andconsuming too much steel.This discussion implies that negative externalities (such as pollution)are more than merelyan ethical problem.
It seems a problem of societal communication andcoordination to balance costs and benefits. This also implies that pollution isnot something solved by competitive market, but some combined solution is needed, forexample, a court system to allow parties affected by the pollution to becompensated or economic incentives such as green taxes.· Positive Externality:Apositive externality known as “external benefit” means the positiveeffect an activity imposes on an unrelated third party (Varian 2010).
For example, theconstruction of an airport and this will benefit local businesses and society. The graph shown above shows the effects of a positiveexternality. In the given case, all education providers are providing itsservices in a competitive market and it is assumed that the marginal private benefitof getting the education is less than the marginal social or public benefit bythe amount of the external benefit. This marginal external benefit of gettingeducation is represented by the vertical distance between the two demandcurves.
Assume there are no external costs, it means social cost equals individual cost. Ifstudents only take into account their own private benefits from gettingeducation, the market will end up at price Pp andquantity Qp as before, instead of the moreefficient price Ps and quantity Qs.These latter again reflect the idea that the marginal social benefit shouldequal the marginal social cost and production or educators should be increased as long as the marginalsocial benefit exceeds the marginal social cost. The result in an unfettered market is inefficient since at the quantity Qp,the social benefit is greater than the societal cost, so society as a whole canbe better off if more education facilities had been produced. The problem isthat not all people are getting education. The issue of external benefits isrelated to that of public goods.
The production of a public good has beneficialexternalities for all, or almost all, of the public. After analysingcarefully the concept of Externality, it can be concluded that in this article,the all education providers are performing a role of positive externalities asthey are producing more educated professionals and these professionals arebenefitting to those people who are less educated or illiterate. Conclusion:In view of the arguments outlined above, it can beconcluded that all education providers are performing under perfect competitivemarket. In the case of IT Profession, universities are unable to meet thedemand of the market as there is shortage of IT professionals, but in thescenario of engineering, the market supply is equal to market demand. Inscience, the labour market is over-supplied with coursework graduates. Underelasticity concept, price elasticity of demand occurs when the variation indemand leads to a variation in price. Moreover, the detailed analysis of externalityconcept suggests that all education providers are performing a role of positiveexternalities as they are producing more educated professionals and the wholesociety is benefitting from them.
· Reference List:Ø Robert, F. (2008), Microeconomics andBehavior (7th ed.), McGraw-Hill. Ø Gaetan, D.R., Bruno, V.P. (2012),Oxford Bulletin of Economics and Statistics, pp.
58–77. Ø James, B.,Stubblebine , C. (1962), Microeconomics – Externalities, pp.371–384.
Ø Mankiw, N.G.,Taylor, M.
P. (2011), Economics (2nd ed.), Cengage Learning.
Ø Norton, A. (2016), Mapping Australian Higher Education,GRATTAN Institute, p3.Ø Varian, H.R. (2010), Intermediate microeconomics:a modern approach, New York.