(2012) A Level H2 Econs Essay Q2 Suggested Answer by Mr Eugene Toh (A Level Economics Tutor)

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2. University education in Singapore and throughout the rest of the world is subsidised by national governments rather than left to market forces. During 2010, several governments announced that these subsidies would be cut, stating the need to reduce large fiscal deficits as the reason.

Explain why countries subsidise university education and discuss whether reductions in subsidies are justified. [25]

Explain why countries subsidise university education

1.       University education is a merit good that is deemed by the government to be socially desirable but yet underconsumed. Underconsumption in university education is due to

a.       Presence of positive externalities

b.       Imperfect information

c.        Income inequity
explain at least 2 of the above points in detail

2.       University education can increase the number of skilled workers in the economy -》 increase productive capacity -》increase LRAS -》 higher potential growth

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