The article by Norton A. (2016) provides an
overview of higher education policy and trends including enrolment numbers,
courses chosen by local and international students as well as enrolment trends
and employment outcomes in science, IT and engineering. This paper, firstly, throws lights on market
analysis as well as demand and supply analysis. Secondly, it explains the
concept of price elasticity of demand and its types. Lastly, it provides a deep
analysis of positive and negative externalities and it also explains whether
education providers are positive or negative externalities and why.
Market & Demand and Supply analysis:
Competition: In the given
scenario, there is perfection competition in the market as it satisfies the
definition of Perfect Completion Market system because there are many sellers,
(40 full universities and around 130 other higher education providers) and
buyers (nearly 350,000 international and one million domestic students) in the
market. Mankiw & Taylor (2011) stated that with so many market players, it
is impossible for any one participant to alter the prevailing price in the
Norton A. (2016)
stated that in engineering, Australia’s higher education system is
performing very well as demand and supply of engineering places respond to
labour market conditions, although the time taken to complete degrees
inevitably means periodic under- or over-supply of graduates. In spite of
fluctuation in demand for engineers, engineering graduates find high-skill jobs
more easily as compared to STEM graduates. So, it can be said that there is
enough market supply to meet market demand (Mankiw & Taylor 2011). So, in this case, equilibrium is the point where the quantity demanded equals the quantity
supplied. This means that there’s no surplus of professionals
and no shortage of jobs.
The given diagram clearly illustrate the relationship
between demand and supply for engineers.
In the case of IT
Profession, universities are not supplying the graduates to meet the demand of fast-moving industry. It means demand is
higher than supply. So, the new equilibrium
point will be above than the old point, as shown in the following diagram and there
is negative relationship between demand and supply (Mankiw & Taylor 2011).
In science, the labour market is over-supplied with
coursework graduates. The number of science graduates is higher than for
engineering or IT, but the number of jobs are lower. In other words, supply is
higher than demand. So, Mankiw & Taylor
(2011) stated that there is
negative relationship between Demand and Supply and the new equilibrium point is lower than the old point, as shown in the following diagram and
there in unemployment in this sector.
Price Elasticity of Demand
Gaetan & Bruno (2012)
stated that Price elasticity of demand occurs when the
variation in demand leads to a variation in price. It can also be defined as
the ratio of the percentage change in demand to the percentage change in price
of particular commodity.
formula for the coefficient of price elasticity of demand is given below:
Types of Price Elasticity of
Ø Perfectly Elastic Demand:
(2008) agued that when a small change in price of a product causes a major
change in its demand, it is said to be perfectly elastic demand. In perfectly
elastic demand, a small rise in price can lead to fall in demand to zero, while
a 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 no
change produced in the demand of a product with change in its price. The
numerical value for perfectly inelastic demand is zero (ep=0).
Ø Relatively Elastic Demand:
Relatively elastic demand means the demand when the
proportionate change produced in demand is greater than the proportionate
change in price of a product. The value of relatively elastic demand ranges
between one to infinity (Robert 2008).
Ø Relatively Inelastic Demand:
& Bruno (2012) stated that relatively inelastic demand refers to demand when the
percentage change produced in demand is less than the percentage change in the
price 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 the proportionate change in demand produces the same change in the price of the product, the demand is referred as unitary elastic demand. The numerical value for unitary elastic demand is equal to one (ep=1). In the given case, 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 or benefit that affects a party who did not choose to incur that cost or benefit. For example, manufacturing activities that cause air pollution impose health and clean-up costs on the whole society. Ø Negative Externality: A negative externality means an economic activity that can impose a negative effect on an unrelated third party. It may arise either during the production or the consumption of a good or service (Varian 2010). The graph shown above describes the effects of a negative externality. Let's take the example of steel industry and it is selling in a competitive market – before pollution-control laws were imposed. The marginal private cost is less than the marginal social or public cost by the amount of the external cost (the cost of air and water pollution). This is illustrated by the vertical distance between the two supply curves. It is supposed that there are no external benefits, so in this case that social benefit equals individual benefit. If the consumers only take into account their own private cost, they will end up at price Pp and quantity Qp, rather than the more efficient price Ps and quantity Qs. These latter reflect the idea that the marginal social benefit must be equal the marginal social cost, that is that production should be increased only as long as the marginal social benefit exceeds the marginal social cost. The result is that a free market is ineffective since at the quantity Qp, the social benefit is less than the social cost, so society as a whole may be better off if the goods between Qp and Qs had not been produced, but the problem is that people are buying and consuming too much steel. This discussion implies that negative externalities (such as pollution) are more than merely an ethical problem. It seems a problem of societal communication and coordination to balance costs and benefits. This also implies that pollution is not something solved by competitive market, but some combined solution is needed, for example, a court system to allow parties affected by the pollution to be compensated or economic incentives such as green taxes. · Positive Externality: A positive externality known as "external benefit" means the positive effect an activity imposes on an unrelated third party (Varian 2010). For example, the construction of an airport and this will benefit local businesses and society. The graph shown above shows the effects of a positive externality. In the given case, all education providers are providing its services in a competitive market and it is assumed that the marginal private benefit of getting the education is less than the marginal social or public benefit by the amount of the external benefit. This marginal external benefit of getting education is represented by the vertical distance between the two demand curves. Assume there are no external costs, it means social cost equals individual cost. If students only take into account their own private benefits from getting education, the market will end up at price Pp and quantity Qp as before, instead of the more efficient price Ps and quantity Qs. These latter again reflect the idea that the marginal social benefit should equal the marginal social cost and production or educators should be increased as long as the marginal social 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 can be better off if more education facilities had been produced. The problem is that not all people are getting education. The issue of external benefits is related to that of public goods. The production of a public good has beneficial externalities for all, or almost all, of the public. After analysing carefully the concept of Externality, it can be concluded that in this article, the all education providers are performing a role of positive externalities as they are producing more educated professionals and these professionals are benefitting to those people who are less educated or illiterate. Conclusion: In view of the arguments outlined above, it can be concluded that all education providers are performing under perfect competitive market. In the case of IT Profession, universities are unable to meet the demand of the market as there is shortage of IT professionals, but in the scenario of engineering, the market supply is equal to market demand. In science, the labour market is over-supplied with coursework graduates. Under elasticity concept, price elasticity of demand occurs when the variation in demand leads to a variation in price. Moreover, the detailed analysis of externality concept suggests that all education providers are performing a role of positive externalities as they are producing more educated professionals and the whole society is benefitting from them. · Reference List: Ø Robert, F. (2008), Microeconomics and Behavior (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.