Two years ago, the UK government raised the cap on University fees from about £3,000 to £9,000. In general, what are the consequences of an increase in a price cap? In your opinion, are there any special features of the market for higher education? Might these special features imply that the effects of such a policy move may be different from what standard economic analysis would predict?.
A price cap is a government imposed price control on the maximum amount that can be charged for a certain good or service. Price Caps are also known as price ceilings.[1] The increase in price cap has many consequences, including social effects and effects on the economy. A consequence of an increase in the cap on university fees from £3,000 to £9,000 would be a decrease in demand for university places. As the law of demand states, as price goes up, demand goes down. So an increase in tuition fees will lead to a fall in the demand for further education at universities as people will have to pay £6,000 more. According to the "Guardian Newspaper" there was a decrease of 15,000 for university places.[2] The fall in demand for university places has many negative effects, one which could be a decrease in the supply of skilled workers in the long term. As fewer people will go to university, fewer people will have a degree which will lead to fall in the pool of skilled workers. As there will be less skilled workers in the long term, unemployment will increase as those without university degrees will be out of jobs which could lead to a fall in income which then would mean their demand for goods and services will be lower than those who are skilled and in employment. This will affect the economy negatively because as less people are in employment, they will have a lower income leading to a decrease in their purchasing power and so businesses that sell luxury goods will liquidate, which would mean higher unemployment and revenue losses for the government.