Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Question

Quizplus · Accepted Answer

In the absence of government subsidies, the market for MBAs will function like any other market. The equilibrium quantity of MBAs will be where the marginal benefit equals the marginal cost, which is the efficient quantity. As there are no externalities, the equilibrium quantity will also be the socially optimal quantity, and hence, the equilibrium quantity of MBAs will equal the efficient quantity. Therefore, option A is correct. The equilibrium price of MBAs is not mentioned in the question stem and cannot be determined.

Suppose That an MBA Degree Creates No Externality Because the Benefits