A college education creates positive externalities. Use the accompanying graph which represents the hypothetical market Market for College Education for a college education in the land of Smartypants to answer the questions that follow. MSB stands for marginal social benefit, MPB stands for marginal private benefit, and MPC stands for marginal private cost. 100 E 90 80 70 1. Move point E to the efficient equilibrium outcome. MPC 60 2. If the government of Smartypants wanted to subsidize college education, how much would it subsidize each student to achieve the socially optimal level of 50 40 education? 30 20 D MSB 10 D MPB 2$ 10 20 30 40 50 60 70 80 90 100 Number of students (in thousands) Price per year ($1000s)
A college education creates positive externalities. Use the accompanying graph which represents the hypothetical market Market for College Education for a college education in the land of Smartypants to answer the questions that follow. MSB stands for marginal social benefit, MPB stands for marginal private benefit, and MPC stands for marginal private cost. 100 E 90 80 70 1. Move point E to the efficient equilibrium outcome. MPC 60 2. If the government of Smartypants wanted to subsidize college education, how much would it subsidize each student to achieve the socially optimal level of 50 40 education? 30 20 D MSB 10 D MPB 2$ 10 20 30 40 50 60 70 80 90 100 Number of students (in thousands) Price per year ($1000s)
Chapter17: Externalities And The Environment
Section: Chapter Questions
Problem 2.4P
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Transcribed Image Text:A college education creates positive externalities. Use the
accompanying graph which represents the hypothetical market
Market for College Education
for a college education in the land of Smartypants to answer
100
E
the questions that follow. MSB stands for marginal social
90
benefit, MPB stands for marginal private benefit, and MPC
80
stands for marginal private cost.
SMPC
70
1. Move point E to the efficient equilibrium outcome.
60
2. If the government of Smartypants wanted to subsidize
college education, how much would it subsidize each
50
student to achieve the socially optimal level of
40
education?
30
20
D
MSB
10
D
MPB
10
20
30
40
50
60
70
80
90
100
Number of students (in thousands)
Price per year ($1000s)
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