If tuition at a college is $30,000 and the external benefit of graduating from this college is $10,000, then i. in the absence of any government intervention, the number of students graduating is less than the efficient number.
Ii. the government could increase the number of graduates by giving the college a $10,000 subsidy per student.
Iii. the government could increase the number of graduates by giving the students $10,000 vouchers.

Question

Quizplus · Accepted Answer

The external benefit suggests a positive externality, leading to under-consumption. Subsidies or vouchers can correct this by effectively reducing the cost to students, aligning private and social benefits.

If Tuition at a College Is $30,000 and the External