Another consequence of an increase in the price cap of tuition fees is that as demand will decrease for university places, the population of students will decrease around the university which will mean a decrease in the sales and revenue for surrounding businesses which will affect the government's revenue as they will receive less corporation and income tax.
However, how much demand drops for university places will all depend on the price elasticity of demand. Elasticity of demand measures the responsiveness of quantity demanded to a change in price. According to the "BBC News", it states that "If fees were anywhere between £6,000 and £10,000 the surveys says about 10% of students wanting to go to university would be deterred from applying".[3] This clearly shows that demand for university places is inelastic as the decrease in demand is smaller than the change in price. As said previously, the increase in tuition fees will cause demand for university places to decrease which will mean fewer skilled workers, reducing the efficiency of the economy. Figure 2 shows that a decrease in skilled workers will lead to a decrease in the long run aggregate supply from LRAS1 to LRAS2, leading to YE1 decreasing to YE2 which means a fall in economic growth. Inflation rate also increases as prices rise from Pe1 to Pe2. .
The government offers a special feature in the form of student finance to students who want to go to university. Due to the increase in tuition fees, students will be deterred to go university, more those from low income families so therefore the special feature provided by the governments supports students wanting to go to university by providing student loans. Student loan and grants reduces the burden on students wanting to go university but do not want to pay such high tuition fees because the fees do not have to be paid in advance as you get money from the government, and you only have to pay back once you start earning over £21,000.
