Chapter 11: Public Goods in Action – Education. The single largest expenditure item for state and local governments is education, consuming about 30% of their budgets.
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A consumer must forgo the free education if they want a higher quality school.
Initially, without free public education, parents choose between educational spending (educational quality) and other goods.
The slope of the budget constraint is determined by the relative prices of education and other goods.
Other goods spending
Family X spends little on education for their children and send their kids to a low-quality school, and spends much more on other goods.
Family Y spends more on education and sends their children to a medium-quality school.
Finally, family Z spends even more on education and sends their children to a high-quality school.
The children in family X now consume higher quality education.
The children in family Y now consume lower quality education.
While the decision of family Z is unchanged.
Now suppose that the government provides free education that costs F.
With a voucher, the budget constraint is different.
You no longer have to forgo the public subsidy to get higher quality schools.
The children in family X consume the same amount as before.
The children in family Y now consume more education, not less.
The children in family Z now consume more than before.