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Hong Kong's English Language Industry
A problem of severe market distortion
 economic modelling (index | government policy considerations)

Graphs 5 and 6 - Private sector profit
Current and adjusted markets

Color code:   current market     adjusted market with subsidy   adjusted market without susidy
Graph 5
Graph 6
graph 4 (graph | questionable investment, poor return) | index

Click on graph for further explanation

  Current market (graph | index)

Under the current situation, in which government provides low-level competence to everyone, private industry provides only the high-level premium. In effect, individuals with high-level competence receive benefits from both low- and high-level competence training, but those with only low-level competence receive no additional economic benefit. In other words, the government subsidizes those who sell their high-level competence to government and industry at the expense of low-level competent individuals.

Aaemo = revenue
Aabmo = cost of providing high-level competence (premium only)
Abem = Aaemo - Aabmo
= profit
    Adjusted market with continued subsidy (graph | index)

One way in which the government could eliminate part of the social waste is to limit the number of low-level competent individuals supplied to the private sector. Alternatively, it could limit the number of private sector schools through special licensing agreements. This would insure that employers of high-level competence pay the full cost of their inputs. This of course would be a great boon to those who go on to acquire high-level competence, and who have only to pay the high-level premium for the acquisition of their skills. Unless the universal language requirement were removed, however, low-level competent individuals would continue to receive the short-end of the stick.

 Aafhk =  revenue
Aabjk = cost of providing high-level competence (premium only)
Abdhj = Aacjk
=  subsidy
Abfhj = Aafhk - Aabjk
 = profit
  Adjusted market without subsidy (graph | index)

The market optimum suggests that government should provide only high-level competent individuals, thus compelling private schools to pay the full cost of providing high-level competence and insuring that government, industry, and the general public pay the full cost of what they utilize.

Aafhk = Pe · Qe
= total revenue 
Aacjk = Abdhj
= cost of providing low-level competence
Aabjk = cost of providing high-level competence
Aadhk = total cost
Adfh = Aafhk - Aadhk
= profit

  Chart Summary (graph | index)

Current market Adjusted market Adjusted market
    High private sector profits with severe social waste     High private sector profits with government subsidy     Low private sector profits with no subsidy
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