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. First, consider the effect of government funding for online tutors. This funding acts as a subsidy, effectively lowering the cost of providing online tutoring services. As a result, the supply curve for online tutoring services shifts to the right, indicating an increase in supply.
2. Next, analyze the impact of an increase in the price of private tutoring, which is a substitute for online tutoring services. As the price of private tutoring rises, consumers are likely to switch to online tutoring services, leading to an increase in demand for online tutoring. This causes the demand curve to shift to the right.
3. Now, combine the effects of both changes. The rightward shift in the supply curve due to government funding increases the quantity supplied at any given price, while the rightward shift in the demand curve due to the higher price of substitutes increases the quantity demanded at any given price.
4. The simultaneous rightward shifts in both supply and demand curves result in an unambiguous increase in the equilibrium quantity of online tutoring services, as both supply and demand are increasing.
5. However, the effect on the equilibrium price is ambiguous. The increase in supply tends to lower the price, while the increase in demand tends to raise the price. The net effect on price depends on the relative magnitudes of the shifts in supply and demand, which are not specified in the problem.