Figure 5-6 College education benefits society by producing a more employable workforce,reducing crime and creating a better informed citizenry.Thus,the social benefits of college education exceed the private benefits for any level of college education.This is illustrated in Figure 5-6.
-Refer to Figure 5-6.One way to obtain the economically efficient amount of college education is for governments to subsidize college education.What is the size of the per-student Pigovian subsidy that the government must provide to internalize 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 5-6  College education benefits society by producing a more employable workforce,reducing crime and creating a better informed citizenry.Thus,the social benefits of college education exceed the private benefits for any level of college education.This is illustrated in Figure 5-6.
-Refer to Figure 5-6.One way to obtain the economically efficient amount of college education is for governments to subsidize college education.What is the size of the per-student Pigovian subsidy that the government must provide to internalize 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 socially optimal level of education is where the marginal social benefit (MSB) equals the marginal social cost (MSC). In this case, the MSB includes both the private benefit and the external/social benefit, which is greater than the private benefit. The MSC includes both the private cost and any externalities, which is equal to the private cost. The Pigovian subsidy needed to internalize the external benefit is the difference between the MSB and the private benefit, which is equal to P₂ - P₁. Therefore, the correct answer is B.

Figure 5-6 College Education Benefits Society by Producing a More