3. 3-3
Markets
• Interaction between buyers and sellers.
• Markets may be
• Local
• National
• International
• Price is discovered in the interactions of buyers and
sellers.
LO3.1
4. 3-4
Demand
• Quantity demanded: Amount consumers are willing
and able to purchase at a given price
• Demand: A table (demand schedule) or curve
(demand curve) that shows the various amounts of a
product that consumers are willing and able to
purchase at each of a series of possible prices during a
specified period of time, assuming other things equal.
• Demand is a relationship between price and quantity
demanded.
LO3.2
5. 3-5
Demand Schedule & Demand Curve
Individual demand
for corn
P Qd
$5 10
4 20
3 35
2 55
1 80
LO3.2
$6
5
4
3
2
1
0 10 20 30 40 50 60 70 80
Quantity demanded (bushels per week)
Price(perbushel)
Q
D
P
6. 3-6
Law of Demand
• Law of demand: Other things equal, as price falls, the
quantity demanded rises, and as price rises, the
quantity demanded falls.
• Demand curve is downward-sloping
• Explanations
• Price acts as an obstacle to buyers
• Law of diminishing marginal utility
• Income effect and substitution effect
LO3.2
7. 3-7
Market Demand
• Market demand is sum of individual consumer’s
demands in market.
• The total quantity demanded in market is sum of
quantities demanded of individual consumers at a
given price
• The market demand curve is a horizontal sum of
individual demand curves.
LO3.2
8. 3-8
Market Demand Schedule
Market Demand for Corn, Three Buyers
Price
per bushel
Quantity Demanded Total
Qd
per weekJoe Jen Jay
$5 10 12 8 30
4 20 23 17 60
3 35 39 26 100
2 55 60 39 154
1 80 87 54 221
LO3.2
10. 3-10
Other Things Equal
• Along the demand curve only the price changes.
• The demand schedule is a relationship between price
and quantity demanded for a given condition (e.g.
population, weather)
• It is assumed “Other things equal”
LO3.2
11. 3-11
Changes in Demand
• When one of other things changes, the demand
changes: An entire relationship between price and
quantity demanded changes.
• Increase in Demand
• Quantities demanded increase at each price
• Demand curve shifts to the right.
• Decrease in Demand
• Quantities demanded decrease at each price
• Demand curve shifts to the left.
LO3.2
12. 3-12
Changes in Demand
Market Demand for
Corn, 200 Buyers, (D1)
P Qd
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
LO3.2
$6
5
4
3
2
1
0 2 4 6 8 10 12 14 16 18
Price(perbushel)
Quantity demanded (thousands of bushels per week)
Q
D1
D2
D3
Decrease
in demand
Increase in demand
P
a
b
(D2)
Qd
5,000
8,000
12,000
17,000
24,000
13. 3-13
Determinants of Demand (1 of 2)
Beside own price, what can affect quantity demanded of
a product?
1. Change in consumer tastes and preferences
2. Change in the number of buyers
3. Change in income
• Normal goods: Income Demand
• Inferior goods: Income Demand
LO3.2
14. 3-14
Determinants of Demand (2 of 2)
4. Change in prices of related goods
• Complementary good: Price of X Demand for Y
• Substitute good: Price of X Demand for Z
5. Change in consumer expectations
• Future prices
• Future income
LO3.2
15. 3-15
Determinants of Demand: Factors that Shift
the Demand Curve
Determinant Examples
Change in buyers’ tastes
Physical fitness rises in popularity, increasing the demand for jogging shoes and
bicycles; smartphone popularity rises, reducing the demand for landline phones.
Change in the number of
buyers
A decline in the birthrate reduces the demand for children’s toys.
Change in income
A rise in incomes increases the demand for normal goods such as restaurant
meals, sports tickets, and necklaces while reducing the demand for inferior
goods such as cabbage, turnips, and cheap wine.
Change in the prices of
related goods
A reduction in airfares reduces the demand for bus transportation (substitute
goods); a decline in the price of printers increases the demand for ink cartridges
(complementary goods).
Change in consumer
expectations
Inclement weather in South America creates an expectation of higher future
coffee bean prices, thereby increasing today’s demand for coffee beans.
LO3.2
16. 3-16
Supply
• Quantity supplied: producers are willing and able to
sell at a given price
• Supply: A table (supply schedule) or curve (supply
curve) that shows the various amounts of a product
that producers are willing and able to sell at each of a
series of possible prices during a specified period of
time, assuming other things equal.
• Supply is a relationship between price and quantity
suppliedLO3.3
17. 3-17
Supply Schedule & Supply Curve
Supply of Corn
P Qs
$5 60
4 50
3 35
2 20
1 5
LO3.3
Price(perbushel)
Quantity supplied (bushels per week)
S
0 10 20 30 40 50 60 70
$6
4
3
2
1
Q
P
5
18. 3-18
Law of Supply
• Law of supply: Other things equal, as the price rises,
the quantity supplied rises and as the price falls, the
quantity supplied falls.
• Supply curve is upward-sloping
• Explanation
• Price acts as an incentive to producers.
• At some point, costs will rise.
LO3.3
19. 3-19
Market Supply
• Market supply is sum of individual producer’s supplies
in market.
• The total quantity supplied in market is sum of
quantities supplied of individual producers at a given
price
• The market supply curve is a horizontal sum of
individual supply curves.
LO3.3
20. 3-20
Change in Supply
• When one of other things changes, the demand
changes: An entire relationship between price and
quantity demanded changes.
• Increase in Supply
• Quantities supplied increase at each price
• Supply curve shifts to the right.
• Decrease in Supply
• Quantities supplied decrease at each price
• Supply curve shifts to the left.
LO3.3
21. 3-21
Changes in Supply
Market Supply
of Corn, 200
Producers (S1)
P Qs
$5 12,000
4 10,000
3 7,000
2 4,000
1 1,000
P
LO3.3
$6
5
4
3
2
1
Price(perbushel)
S1
Quantity supplied (thousands of bushels per week)
2 4 6 8 10 12 14 16
Q
S2
S3
Increase
in supply
Decrease
in supply
0
b
a
(S2)
Qs
15,000
13,000
11,000
9,000
5,000
22. 3-22
Determinants of Supply
Beside own price, what can affect quantity supplied of a
product?
1. A change in resource prices
2. A change in technology
3. A change in the number of sellers
4. A change in taxes and subsidies
5. A change in prices of other goods
6. A change in producer expectations
LO3.3
23. 3-23
Determinants of Supply: Factors that Shift the
Supply Curve
Determinant Examples
Change in resource
prices
A decrease in the price of microchips increases the supply of computers; an increase in the
price of crude oil reduces the supply of gasoline.
Change in technology The development of more effective wireless technology increases the supply of
smartphones.
Change in taxes and
subsidies
An increase in the excise tax on cigarettes reduces the supply of cigarettes; a decline in
subsidies to state universities reduces the supply of higher education.
Change in prices of
other goods
An increase in the price of cucumbers decreases the supply of watermelons.
Change in producer
expectations
An expectation of a substantial rise in future lumber prices decreases the supply of logs
today.
Change in the number
of suppliers
An increase in the number of tattoo parlors increases the supply of tattoos; the formation of
women’s professional basketball leagues increases the supply of women’s professional
basketball games.
LO3.3
24. 3-24
Shortage and Surplus
• So what will happen when consumers and producers
interact in market?
• Compare quantity demanded and quantity supplied
at each price
• Surplus (Excess supply) if quantity supplied exceeds
quantity demanded
• Shortage (Excess demand) if quantity demanded exceeds
quantity supplied
LO3.4
25. 3-25
Shortage/Surplus and Price Change
• When there is a surplus, price falls as sellers who
cannot sell at current price bid down.
• When there is a shortage, price rises as buyers who
cannot purchase at current price bid up.
• Eventually, it reaches the equilibrium.
• Equilibrium if quantity demanded is equal to quantity
supplied
• At the equilibrium, price will not change.
LO3.4
26. 3-26
Market Equilibrium
• Equilibrium can be found on the diagram of demand supply
where the demand curve and supply curve intersect.
• Equilibrium can be found on the schedule of demand
supply where a quantity demanded is equal to a quantity
supplied at the same price.
• Equilibrium price (price at equilibrium) and equilibrium
quantity (quantity at equilibrium)
LO3.4
27. 3-27
P Qd
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
Equilibrium Price and Quantity
LO3.4
P Qs
$5 12,000
4 10,000
3 7,000
2 4,000
1 1,000
$6
5
4
3
2
1
0 2 4 6 8 10 12 14 16 18
Price(perbushel)
7
D
S6,000-bushel
surplus
7,000-bushel
shortage
Bushels of corn (thousands per week)
P
Q
28. 3-28
Efficient Allocation
Market leads to an efficient allocation of resources through
1. Productive efficiency
• Producing goods in the least costly way
• Using the best technology
• Using the right mix of resources
2. Allocative efficiency
• Producing the right mix of goods
• The combination of goods most highly valued by society
LO3.4
29. 3-29
Rationing Function of Prices
• Market determines who buy and who sell products
(and who cannot buy or sell) and how many.
• The ability of the competitive forces of demand and
supply to establish a price at which selling and buying
decisions are consistent.
LO3.4
30. 3-30
Changes in Equilibrium
• When demand or supply changes, the equilibrium
also changes.
• As the equilibrium changes, the equilibrium price and
equilibrium quantity also change.
LO3.4
31. 3-31
Changes in Demand and Equilibrium
LO3.5
00
P
D1
D2
S
(a)
Increase in demand
D increase:
P, Q
D decrease:
P, Q
(b)
Decrease in demand
D4
D3
S
P
Q Q
32. 3-32
Changes in Supply and Equilibrium
LO3.5
0
P
D
S2
S1
(c)
Increase in supply
S increase:
P, Q
S decrease:
P, Q
Q
0
P
D
S3S4
(d)
Decrease in supply
Q
33. 3-33
Effects of Changes in Both Supply and Demand
Change in Supply Change in Demand
Effect on
Equilibrium Price
Effect on
Equilibrium
Quantity
1. Increase Decrease Decrease Indeterminate
2. Decrease Increase Increase Indeterminate
3. Increase Increase Indeterminate Increase
4. Decrease Decrease Indeterminate Decrease
Complex Cases
LO3.5
34. 3-34
Slope of Demand and Changes in Equilibrium
• If the demand curve is vertical (perfectly inelastic
demand), changes in supply only produce changes in
equilibrium price, but not equilibrium quantity.
• If the demand curve is horizontal (perfectly elastic
demand), changes in supply only produce changes in
equilibrium quantity, but not equilibrium price.
LO3.6
35. 3-35
Government Set Prices: Price Ceiling
• Price ceiling:
• Set below equilibrium price
• Rationing problem
• Black markets
• Example is rent control.
LO3.6
37. 3-37
Government Set Prices: Price Floor
• Price floor:
• Prices are set above the market price.
• Chronic surpluses.
• Example is the minimum wage law.
LO3.6
39. 3-39
Last Word: Student Loans and Tuition Costs
• In 1958 the federal government began subsidizing student
loans.
• Tuition costs have risen steadily since:
• 1971–72: $1,405 (public) & $2,929 (private)
• 2017–18: $25,290 (public) & $50,900 (private)
• Economic research finds that loans were major cause of
rising tuition costs.
• Each $1 increase in loans increases tuition costs by 70 cents.
40. 3-40
Student Loans vs. Higher Education Subsidy
• More loans lead to higher tuition costs:
• Increases the student’s ability to pay
• Increase in demand for higher education
• Shifts the demand curve right
• Government should subsidize supply instead:
• Reduces the cost of providing higher education
• Increase in supply of higher education
• Shifts the supply curve right
This chapter provides an introduction to demand and supply concepts. Both demand and supply are defined and illustrated; determinants of demand and supply are listed and explained. The concept of equilibrium and the effects of changes in demand and supply on equilibrium price and quantity are explained and illustrated. The chapter also includes a brief discussion on efficiency (productive and allocative) and price controls (floors and ceilings). In the Last Word, you can read how government subsidized loans have increased the cost of attending college.
Learning Objectives
LO3.1 Characterize and give examples of markets.
LO3.2 Describe demand and explain how it can change.
LO3.3 Describe supply and explain how it can change.
LO3.4 Explain how supply and demand interact to determine market equilibrium.
LO3.5 Explain how changes in supply and demand affect equilibrium prices and quantities.
LO3.6 Define government-set prices and explain how they can cause surpluses and shortages.
LO3.7 (Appendix)
In this chapter, the focus is on markets that are competitive. This requires large numbers of buyers and sellers acting independently. An example of a local market is the farmer’s market that brings together buyers and sellers of produce in the summer. An example of a national market is the US real estate market and the New York Stock Exchange is an international market.
LO3.1 Characterize and give examples of markets.
To be part of the demand for a good, consumers have to be willing and able to purchase the good. When deriving demand, we are assuming that the only factor that causes consumers to buy more or less is the price of the good. It is assumed that all other factors that influence the amount that consumers will buy are constant. Market demand is derived by summing the individuals’ demand curves.
LO3.2 Describe demand and explain how it can change.
The demand curve illustrates the inverse relationship between price and quantity. The downward slope indicates a lower quantity (horizontal axis) at a higher price (vertical axis), and a higher quantity at a lower price, reflecting the law of demand.
LO3.2 Describe demand and explain how it can change.
An inverse relationship exists between price and quantity demanded. Prices act as obstacles for buyers and keep them from being able to buy everything that they want. So, it makes sense that with a limited income, consumers will buy more at lower prices.
Diminishing marginal utility refers to the decrease in added satisfaction that results as one consumes additional units of a good or service, i.e., the second “Big Mac” yields less extra satisfaction (or utility) than the first. Because additional units yield less utility, the price has to be lower to make up for less utility.
The income effect occurs as a lower price increases the purchasing power of money income; this enables the consumer to buy more at a lower price (or less at a higher price) without having to reduce consumption of other goods.
The substitution effect is when a lower price gives an incentive to substitute the lower-priced good for the now relatively higher-priced goods.
LO3.2 Describe demand and explain how it can change.
To be part of the demand for a good, consumers have to be willing and able to purchase the good. When deriving demand, we are assuming that the only factor that causes consumers to buy more or less is the price of the good. It is assumed that all other factors that influence the amount that consumers will buy are constant. Market demand is derived by summing the individuals’ demand curves.
There are three buyers in the market for corn. The market demand is the horizontal summation of the individual demand curves of all of the consumers in the market. At a price of $3, for example, the three individual curves yield a total quantity demanded of 100 bushels.
LO3.2 Describe demand and explain how it can change.
There are three buyers in the market for corn. The market demand is the horizontal summation of the individual demand curves of all of the consumers in the market. At a price of $3, for example, the three individual curves yield a total quantity demanded of 100 bushels.
LO3.2 Describe demand and explain how it can change.
To be part of the demand for a good, consumers have to be willing and able to purchase the good. When deriving demand, we are assuming that the only factor that causes consumers to buy more or less is the price of the good. It is assumed that all other factors that influence the amount that consumers will buy are constant. Market demand is derived by summing the individuals’ demand curves.
Changes in the demand for corn will be brought about by a change in one or more of the determinants of demand. An increase in demand is shown as a shift of the demand curve to the right, as from D1 to D2. A decrease in demand is shown as a shift of the demand curve to the left, as from D1 to D3. Caution: These changes in demand are to be distinguished from a change in quantity demanded, which is caused by a change in the price of the product and is shown by a movement from one point to another point on a fixed demand curve.
LO3.2 Describe demand and explain how it can change.
Determinants are those things that can shift the entire demand curve causing demand to change. When most consumers experience the same change in tastes for a particular good, the demand for the good will change. If there is a preferable change in tastes, demand will increase. On the other hand, if there is an unfavorable change in tastes, demand will fall.
If there are more buyers in the market for a good, demand will increase, whereas when there are fewer buyers in the market for a good, demand will decrease.
Normal goods are goods that we buy more of as our incomes increase. Most of the goods that we buy are normal goods. We buy fewer normal goods when our income decreases.
Inferior goods are goods we buy more of as our income decreases. We buy fewer inferior goods if our income increases.
LO3.2 Describe demand and explain how it can change.
Complementary goods are goods that we consume jointly. It isn’t beneficial to have one without its complement. When the price of one complement increases, the demand for the other complement decreases. When the price of one complement decreases, the demand for the other complement increases. Some examples are cell phones and cell phone service, tuition and textbooks.
Substitute goods are goods that we use in place of another. A perfect substitute is a good that we use in place of the other without any loss of satisfaction. If the price of one good increases, the demand for its substitute increases. If the price of one good decreases, the demand for the other substitute decreases. Some examples are Colgate and Crest toothpaste, Nike and Reebok shoes.
If consumers expect the future price of a product to be higher, they increase their current demand for the product.
If consumers expect the future price of a product to be lower, they decrease their current demand for the product.
If consumers expect their future income to rise, they increase purchases now. If consumers believe their future income will be less, they reduce their demand for some products.
LO3.2 Describe demand and explain how it can change.
A change in one or more of these determinants will change demand and shift the demand curve.
LO3.2 Describe demand and explain how it can change.
To be part of the supply of a good, producers have to be willing and able to produce the good. When creating supply, we are assuming that the only factor that causes firms to produce more or less is the price of the good. It is assumed that all other factors that influence the amount that firms will produce are constant. Market supply is created by summing the individual firms’ supply curves.
LO3.3 Describe supply and explain how it can change.
Because price and quantity supplied are directly related, the supply curve graphs as an upsloping curve. Other things equal, producers will offer more of a product for sale as its price rises and less of the product for sale as its price falls.
LO3.3 Describe supply and explain how it can change.
Producers are willing to produce and sell more of their product at a high price than at a low price. There is a direct relationship between price and quantity supplied. Given product costs, a higher price means greater profits and thus an incentive to increase the quantity supplied. Beyond some level of output, producers usually encounter increasing costs per added unit of output.
LO3.3 Describe supply and explain how it can change.
To be part of the supply of a good, producers have to be willing and able to produce the good. When creating supply, we are assuming that the only factor that causes firms to produce more or less is the price of the good. It is assumed that all other factors that influence the amount that firms will produce are constant. Market supply is created by summing the individual firms’ supply curves.
A change in one or more of the determinants of supply causes a change in supply. An increase in supply is shown as a rightward shift of the supply curve, as from S1 to S2. A decrease in supply is depicted as a leftward shift of the curve, as from S1 to S3. Caution: These changes in supply are to be distinguished from a change in quantity supplied, which is caused by a change in the price of the product and is a movement from one point to another point on a fixed supply curve.
LO3.3 Describe supply and explain how it can change.
If resource prices (input prices) go up, supply decreases. If resource prices (input prices) go down, supply increases.
If technology increases, supply increases. If we adopt, or use, less efficient technology, supply decreases.
If the number of sellers increases, supply increases. Economic profits in the market draw producers from less profitable markets into this market. If the number of sellers decreases, supply decreases. Economic losses in the market cause producers to leave market.
If taxes are increased on a specific product, supply decreases. If taxes are decreased, or eliminated on a specific product, supply increases. If subsidies are increased on a specific product, supply increases. If subsidies are decreased on a specific product, supply decreases.
If the price of another good that the producer could produce with the same resources rises, the supply decreases for the product the producers are currently producing.
If the price of another good that the producer could produce with the same resources falls, the supply increases for the product the producers are currently producing.
If producers expect that the price of the product they are producing will be higher in the future, they cut back on current supply and supply will decrease. If producers expect the price of the product they are producing will be lower in the future, they increase current supply to take advantage of the currently higher price.
LO3.3 Describe supply and explain how it can change.
A change in one or more of these determinants will change supply and shift the curve.
LO3.3 Describe supply and explain how it can change.
The equilibrium price is also known as the market-clearing price. Graphically, note that the equilibrium price and quantity are where the supply and demand curves intersect. It is important to note that it is not correct to say supply equals demand.
The rationing function of prices is the ability of competitive forces of supply and demand to establish a price where buying and selling decisions are coordinated.
At prices above this equilibrium, note that there is an excess quantity supplied, or a surplus.
At prices below this equilibrium, note that there is an excess quantity demanded, or shortage.
At equilibrium the markets are economically efficient.
LO3.4 Explain how supply and demand interact to determine market equilibrium.
The equilibrium price is also known as the market-clearing price. Graphically, note that the equilibrium price and quantity are where the supply and demand curves intersect. It is important to note that it is not correct to say supply equals demand.
The rationing function of prices is the ability of competitive forces of supply and demand to establish a price where buying and selling decisions are coordinated.
At prices above this equilibrium, note that there is an excess quantity supplied, or a surplus.
At prices below this equilibrium, note that there is an excess quantity demanded, or shortage.
At equilibrium the markets are economically efficient.
LO3.4 Explain how supply and demand interact to determine market equilibrium.
The intersection of the downsloping demand curve, D, and the upsloping supply curve, S, indicates the equilibrium price of $3 and equilibrium quantity of 7,000 bushels of corn per week.
The shortages of corn at below-equilibrium prices (for example, 7000 bushels at $2) drive up the price. The higher prices increase the quantity supplied and reduce the quantity demanded until equilibrium is achieved. The surpluses caused by above-equilibrium prices (for example, 6000 bushels at $4) push the price down. As price drops, the quantity demanded rises and the quantity supplied falls until equilibrium is established. At the equilibrium price and quantity, there are neither shortages nor surpluses of corn.
LO3.4 Explain how supply and demand interact to determine market equilibrium.
Competitive markets generate productive efficiency that is the production of any particular good in the least costly way. Sellers that don’t achieve the least-cost combination of inputs will be unprofitable and have difficulty competing in the market.
The competitive process also generates allocative efficiency which is producing the combination of goods and services most valued by society. Allocative efficiency requires that there be productive efficiency. Productive efficiency can occur without allocative efficiency. Goods can be produced in the least costly method without being the most wanted by society. Allocative and productive efficiency occur at the equilibrium price and quantity in a competitive market. Resources are neither over-allocated nor under-allocated based on society’s wants.
LO3.4 Explain how supply and demand interact to determine market equilibrium.
Prices automatically rise and fall and bring a market closer to equilibrium. Prices are the best tool for eliminating market shortages and surpluses.
LO3.4 Explain how supply and demand interact to determine market equilibrium.
An increase in demand results in an increase in price and an increase in quantity exchanged.
A decrease in demand results in a decrease in price and a decrease in the quantity exchanged.
LO3.5 Explain how changes in supply and demand affect equilibrium prices and quantities.
An increase in supply results in a decrease in price and an increase in the quantity exchanged.
A decrease in supply results in an increase in price and a decrease in the quantity exchanged.
LO3.5 Explain how changes in supply and demand affect equilibrium prices and quantities.
These cases demonstrate what happens to equilibrium price and equilibrium quantity when supply and demand shifts occur simultaneously.
If supply increases and demand decreases, price declines, but the new equilibrium quantity depends on the relative sizes of shifts in demand and supply.
If supply decreases and demand increases, price rises, but the new equilibrium quantity depends on the relative sizes of shifts in demand and supply.
If supply and demand change in the same direction (both increase or both decrease), the change in equilibrium quantity will be in the direction of the shift but the change in equilibrium price now depends on the relative shifts in demand and supply.
LO3.5 Explain how changes in supply and demand affect equilibrium prices and quantities.
Price ceilings are maximum prices that can be charged on a good. Price ceilings are set on goods that are considered to be necessities, but the equilibrium price is so high that many people are unable to purchase the item. To be effective, the price ceiling must be set below the equilibrium price. When price ceilings are placed on a good, this creates a chronic shortage which makes it difficult to determine how to ration the limited output for all of the consumers who are willing and able to buy the good. The shortages often lead to black markets where the good is sold at a higher price than the price ceiling. Price ceilings distort the efficient allocation of resources.
LO3.6 Define government-set prices and explain how they can cause surpluses and shortages.
A price ceiling is a maximum legal price such as Pc. When the ceiling price is below the equilibrium price, a persistent product shortage results. Here that shortage is shown by the horizontal distance between Qd and Qs.
LO3.6 Define government-set prices and explain how they can cause surpluses and shortages.
A price floor is a minimum price fixed by the government. A price at or above the price floor is legal; a price below it is not.
LO3.6 Define government-set prices and explain how they can cause surpluses and shortages.
A price floor is a minimum legal price such as Pf. When the price floor is above the equilibrium price, a persistent product surplus results. Here that surplus is shown by the horizontal distance between Qs and Qd.
LO3.6 Define government-set prices and explain how they can cause surpluses and shortages.
Government subsidization made the loans more affordable because now the loans can be offered at lower interest rates and with fewer credit checks. The increase in tuition costs over time was incorrectly assumed to be from outside factors like paying higher salaries to faculty, installing new technology, adding more staff to offer career advisement and tutoring programs.
One alternative is for the government to set up programs to increase the supply of education, which would cause the supply curve to shift to the right causing the equilibrium price to fall. This is what contributed to the rapid expansion of state university systems after WWII.
