Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. The original assumption for Gondolin stated that the marginal private benefit is equal to the marginal social benefit. Now instead assume that the marginal social benefit of tertiary education is greater than the marginal private benefit. That is, assume there is a positive externality associated with having a tertiary education. Draw this in a new figure. Is the deadweight loss from the subsidy increased or decreased with the introduction of the positive externality? Why?

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