College education benefits society by producing a more employable workforce,reducing crime,and creating a better informed citizenry.Thus,the marginal social benefits of college education exceed the marginal private benefits for any level of college education.This is illustrated in Figure 5-12.
-Refer to Figure 5-12.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

Quizplus · Accepted Answer

The economically efficient amount of college education is where MSC = MSB, which occurs at point Q2. At this point, the price students pay for education is P2, but the marginal social benefit is greater than the marginal private benefit, creating a positive externality. To internalize this externality, the government needs to subsidize education by the amount that the marginal social benefit exceeds the marginal private benefit, which is equal to P2 - P1. Therefore, the size of the per-student Pigovian subsidy that the government must provide is (B) P2-P1.

College Education Benefits Society by Producing a More Employable Workforce,reducing