Some economists argue that early child care generates an external benefit to society. Consider the following supply-and-demand graph for early childhood education. A. How does the market equilibrium differ from what is best for society? B. If the government was going to provide a per-unit subsidy in this market in order to achieve the socially optimal outcome, how large of a subsidy would the government ne to provide? C. How much in total would the government need to spend in this market each month to achieve a socially optimal outcome? Price ($ per month) Supply $1,300 $1,200 $1,000 $900 Marginal social benefit Marginal private benefit (demand) 23 26 Quantity (millions per month)
Some economists argue that early child care generates an external benefit to society. Consider the following supply-and-demand graph for early childhood education. A. How does the market equilibrium differ from what is best for society? B. If the government was going to provide a per-unit subsidy in this market in order to achieve the socially optimal outcome, how large of a subsidy would the government ne to provide? C. How much in total would the government need to spend in this market each month to achieve a socially optimal outcome? Price ($ per month) Supply $1,300 $1,200 $1,000 $900 Marginal social benefit Marginal private benefit (demand) 23 26 Quantity (millions per month)
Chapter17: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 12QP
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Transcribed Image Text:Some economists argue that early child care generates an external benefit to society.
Consider the following supply-and-demand graph for early childhood education.
A. How does the market equilibrium differ from what is best for society?
B. If the government was going to provide a per-unit subsidy in this market in order to
achieve the socially optimal outcome, how large of a subsidy would the government ne
to provide?
C. How much in total would the government need to spend in this market each month to
achieve a socially optimal outcome?
Price
($ per month)
Supply
$1,300
$1,200
$1,000
$900
Marginal
social
benefit
Marginal
private benefit
(demand)
23 26
Quantity
(millions per month)
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