If consumption of education creates a positive externality, then in order to increase efficiency relative to the outcome determined by private decisions,
A)more education must be produced
B)the same amount of education must be produced, and the price should be lower
C)less education must be produced, and the price should be higher
D)less education must be produced, and the price should be lower
E)less education must be produced at the same price

Question

Quizplus · Accepted Answer

When consumption of education creates a positive externality, there is a spillover effect where society as a whole benefits from an individual's education. This means that the private demand for education will be lower than the social demand. Therefore, in order to increase efficiency and reach the socially optimal level, more education must be produced to align private and social demand.

If Consumption of Education Creates a Positive Externality, Then in Order