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.
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) i, ii, and iii

Question

Quizplus · Accepted Answer

i. The presence of an external benefit means that the social benefit of graduating is higher than the private benefit by $10,000. This discrepancy leads to under-enrollment compared to the socially optimal level, as individuals do not consider the external benefit when deciding whether to attend.ii. A $10,000 subsidy to the college per student effectively lowers the cost of providing education, which can allow the college to reduce tuition or improve quality, making education more attractive to potential students and likely increasing enrollment.iii. A $10,000 voucher to students directly lowers their cost of attending college, making it more financially feasible for more students to enroll, thus increasing the number of graduates.

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