Chp 26 Problem 10. Module 5

Chp 26 Problem 10. Module 5 - translates into higher fees...

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Price fixing implies that two or more competitors in a market have joined hands to keep prices above the market determined prices. This allows them to make higher profits since the consumer has no option. The firms collectively have no close substitute and the consumer has to either does not consume or pay the higher price. This fixing can take many forms---fixing the maximum discount, setting a minimum price, limiting output to defined levels or fixing service charges. The main point is that whatever price is fixed, it disrupts the market determined price. When universities fix the amount of scholarships (prices of its courses rises) it
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Unformatted text preview: translates into higher fees from students compared to the fees that would prevail based on market demand and supply for scholarships. This is because lower scholarships mean more money has to be paid by the student from her own sources---implying a price rise for university courses. Such higher prices reduce consumer surplus for the consumer (which is the student here) the producer surplus is higher as universities make high profits. Loss in consumer surplus=gain to producer price of scholarships P fix P eq Quantity of scholarships...
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