Figure 11.14 University education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry. Thus, the social benefits of university education exceed the private benefits for any level of university education. This is illustrated in Figure 11.14.
-Refer to Figure 11.14.One way to obtain the economically efficient amount of university education is for governments to subsidise university education.What is the size of the per-student Pigovian subsidy that the government must provide to internalise the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example,through low-interest student loans.)

Question

Figure 11.14  University education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry. Thus, the social benefits of university education exceed the private benefits for any level of university education. This is illustrated in Figure 11.14.
-Refer to Figure 11.14.One way to obtain the economically efficient amount of university education is for governments to subsidise university education.What is the size of the per-student Pigovian subsidy that the government must provide to internalise the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example,through low-interest student loans.)

Quizplus · Accepted Answer

The per-student Pigovian subsidy that the government must provide to internalise the external benefits is equal to the difference between the social benefit of the education (P₂) and the private benefit of the education (P₁). Therefore, the correct formula for the subsidy is P₂ - P₁, which matches option B.

Figure 1114 University Education Benefits Society by Producing a More