Use the figure below to answer the following questions. Figure 15.3.3
-Refer to Figure 15.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.If society's external benefit from university graduates is $10,000 each,then
A)a subsidy of $10,000 per student paid to the universities achieves efficiency.
B)a tax of $10,000 per student imposed on the universities achieves efficiency.
C)10 million students per year is the efficient number students.
D)a subsidy of $20,000 per student paid to the universities achieves efficiency.
E)a tax of $5,000 per student paid by taxpayers achieves efficiency.

Question

Use the figure below to answer the following questions.  Figure 15.3.3
-Refer to Figure 15.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.If society's external benefit from university graduates is $10,000 each,then
A)a subsidy of $10,000 per student paid to the universities achieves efficiency. 
B)a tax of $10,000 per student imposed on the universities achieves efficiency. 
C)10 million students per year is the efficient number students. 
D)a subsidy of $20,000 per student paid to the universities achieves efficiency. 
E)a tax of $5,000 per student paid by taxpayers achieves efficiency.

Quizplus · Accepted Answer

CA subsidy of $10,000 per student paid to the universities internalizes the externality by aligning the marginal private benefit with the marginal social benefit, thus achieving efficiency. Additionally, if the figure suggests that 10 million students per year is where the marginal social cost equals the marginal social benefit (including the external benefit), then this is the efficient number of students.

Use the Figure Below to Answer the Following Questions