If a positive externality exists in the provision of education when education is provided in a perfectly competitive market without government intervention, at the market equilibrium level of education:
A) additional net gains to society are possible by reducing the level of education.
B) additional net gains to society are possible by raising the level of education.
C) the marginal social benefit of education equals the marginal social cost.
D) additional net gains to society are not possible by either increasing or decreasing the level of education.

Question

Quizplus · Accepted Answer

In the presence of a positive externality, the marginal social benefit of education exceeds the marginal private benefit. Therefore, the market equilibrium level of education is lower than the socially optimal level, and additional net gains to society are possible by increasing the level of education.

If a Positive Externality Exists in the Provision of Education