Figure 15.12 University education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry.Thus, the social benefits of university education exceed the private benefits for any level of university education.This is illustrated in Figure 15.12.
-Refer to Figure 15.12.One way to obtain the economically efficient amount of university education is for governments to subsidise university education.What is the size of the per-student Pigovian subsidy that the government must provide to internalise the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.)

Question

Figure 15.12  University education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry.Thus, the social benefits of university education exceed the private benefits for any level of university education.This is illustrated in Figure 15.12.
-Refer to Figure 15.12.One way to obtain the economically efficient amount of university education is for governments to subsidise university education.What is the size of the per-student Pigovian subsidy that the government must provide to internalise the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.)

Quizplus · Accepted Answer

The per-student Pigovian subsidy is equal to the difference between the total social benefit (PS1U1B12) and the private benefit (S1U1B0) of education, minus the cost (PS1U1B11) of providing the education. Therefore, the subsidy is PS1U1B12 - S1U1B0 - PS1U1B11S1U1B0, which simplifies to PS1U1B12S1U1B0 - PS1U1B11S1U1B0. Option B is the only choice that gives this answer.

Figure 1512 University Education Benefits Society by Producing a More