Applications of Demand and Supply

Without a third-party payer for education, the graph shows equilibrium tuition of P₁ and equilibrium quantity of education of Q₁. State support for education lowers tuition that students pay to P₂. As a result, students demand Q₂ courses per year. To provide that amount of education, educational institutions require tuition per course of P₃. Without a third-party payer, spending on education is 0P₁EQ₁. With a third-party payer, spending rises to 0P₃FQ₂.