A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.
-Refer to Figure 5-5.The fixed-quantity subsidy reduces schooling by _____.
A)G0
B)B0
C)BG
D)H0

Question

A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring. 
-Refer to Figure 5-5.The fixed-quantity subsidy reduces schooling by _____.
A)G0 
B)B0 
C)BG 
D)H0

Quizplus · Accepted Answer

Before the subsidy, the family is in equilibrium at point J where the marginal cost of education (MC) is equal to the marginal benefit (MB). After the subsidy, the cost of education falls and the family moves to a new equilibrium at point BG, where the marginal cost of education is equal to the new marginal benefit. This new equilibrium results in a lower level of schooling than before the subsidy (i.e. G0 is less than B0). Therefore, choice C is correct as it represents the new equilibrium level of schooling after the subsidy. The other choices do not accurately represent the changes in schooling levels resulting from the subsidy.

A Family's Preferences Toward Schooling,before and After a Fixed-Quantity Subsidy,are