Consider the education market of a country which is perfectly competitive. The demand equation for education is given by P = 14 - 2Q and the supply equation of education is given by P = 2 + Q. (i) Assume that education is able to generate a positive external benefit of 3 per unit. Examine the education market and explain why the market is inefficient. Compute the deadweight loss and support your answers with an education market diagram. (ii) What should the government do to restore efficiency in the education market. Explain.
Consider the education market of a country which is perfectly competitive. The demand equation for education is given by P = 14 - 2Q and the supply equation of education is given by P = 2 + Q. (i) Assume that education is able to generate a positive external benefit of 3 per unit. Examine the education market and explain why the market is inefficient. Compute the deadweight loss and support your answers with an education market diagram. (ii) What should the government do to restore efficiency in the education market. Explain.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 8QP
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Consider the education market of a country which is perfectly competitive. The
of education is given by P = 2 + Q.
(i) Assume that education is able to generate a positive external benefit of 3
per unit. Examine the education market and explain why the market is
inefficient. Compute the deadweight loss and support your answers with
an education market diagram.
(ii) What should the government do to restore efficiency in the education
market. Explain.
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