What happens in the market for online tutoring services if (1) the government decides to provide funding for online tutors and (2) the price of private tutoring, a substitute for online tutoring services, increases?

• A. Equilibrium price rises, equilibrium quantity ambiguous
• B. Equilibrium price ambiguous, equilibrium quantity falls
• C. Equilibrium price falls, equilibrium quantity ambiguous
• D. Equilibrium price ambiguous, equilibrium quantity rises

Answer: (D)

Verified step by step guidance

1. Identify the two main factors affecting the market: government funding for online tutors and the increase in the price of private tutoring.
2. Analyze the effect of government funding: This is likely to increase the supply of online tutoring services as more tutors enter the market due to the financial support.
3. Consider the impact of the increase in the price of private tutoring: As private tutoring becomes more expensive, demand for the relatively cheaper online tutoring services is likely to increase.
4. Combine the effects on supply and demand: The increase in supply due to government funding tends to lower the equilibrium price, while the increase in demand due to the higher price of substitutes tends to raise the equilibrium price.
5. Determine the overall impact: Since both supply and demand are increasing, the equilibrium quantity of online tutoring services will rise. However, the effect on equilibrium price is ambiguous because it depends on the relative magnitudes of the shifts in supply and demand.