2012 A Level H2 Economics Review: Microeconomics Qn 2

2. University education in Singapore and throughout the rest of the world is subsidized 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 budget deficits as the reason.

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

I have created a brief mind-map detailing some of the arguments you can consider when writing this essay. It is by no means an exhaustive list.

Here’s the link to the mindmap.

My own stand on the issue is that such reductions are not justified at the moment because university education is an important investment for a country’s future and until we have figured out a way to outsource university education completely (i.e. exploit the comparative advantage of countries with good education systems), it will always be necessary to subsidize it for any nation. With rapid degree inflation, countries that cut down subsidies for university education might soon find themselves lagging behind the rest of the world in terms of labour productivity. Technological growth will also be impeded in these countries as research funding are drawn away from government sponsored projects. However, implicit in this view is that I disagree with the widely touted costs of a budget deficit and the presumed benefits of austerity programmes and it is clear that with the recent developments in the austerity debate, that such a view is becoming increasingly mainstream.

Till next time, dream economics.