1. University fees in the State of Nirvana have been frozen in realterms for 10 years. During this period enrolments increased by 20 percent,reflecting an increase in demand. This means the supply...

1.





University fees in the State of Nirvana have been frozen in real terms for 10 years. During this period enrolments increased by 20 percent, reflecting an increase in demand. This means the supply curve is horizontal at a given price.

a)



Draw a supply curve and two demand curves to represent the two equilibriums described.

b)



Can you estimate the price elasticity of demand for university education in this market?

c)



In contrast, during the same time period fees in a neighboring state (where supply is also horizontal) increased by 60 percent, and enrolments increased by 15 percent. Illustrate this situation in a diagram, where supply is again horizontal.