Suppose the following data represent the market demand for college education: (in millions per year) (a) If tuition is set at $8,000, how many students will enroll? Now suppose that society gets an external benefit of $2,000 for every enrolled student. (b) Draw the social and market demand curves for this situation on the graph below. (Hint: society will get a $10,000 per student benefit from students who pay $8,000 tuition to go to College, so society should be willing to enroll this same number of students at a cost of $10,000 instead of $8,000.) (c) What is the socially optimal level of enrollment at the same tuition price of $8,000?
Suppose the following data represent the market
(in millions per year)
(a) If tuition is set at $8,000, how many students will enroll?
Now suppose that society gets an external benefit of $2,000 for every enrolled student.
(b) Draw the social and market demand
(Hint: society will get a $10,000 per student benefit from students who pay $8,000 tuition to go to College, so society should be willing to enroll this same number of students at a cost of $10,000 instead of $8,000.)
(c) What is the socially optimal level of enrollment at the same tuition price of $8,000?
(d) How large of a subsidy is needed to achieve this optimal outcome?
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