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29 Oct 2020

15. From the graph below, to achieve economic efficiency, what should the magnitude of the arrow in the graph be equal to?

 

 

a. the amount of a subsidy

 b. the amount of a tax

c. the amount of a price increase

d. the social benefit of education

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Raushan Raj
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29 Oct 2020

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Related questions

Use the figure below to answer the following question. Price and cost thousands of dollars per student 25 -MSC-MC MB "MB = D. 5 10 15 20 25 Quantity (millions of students per year) Figure 7 34) Refer to Figure 7. The figure shows the marginal private benefit and marginal social cost of a university education. If society's external benefit from university graduates is $10,000 each, then (A) a subsidy of $10,000 per student paid to the universities achieves efficiency. B) a tax of S10,000 per student imposed on the universities achieves efficiency C) a subsidy of $20,000 per student paid to the universities achieves efficiency. D) 10 million students per year is the efficient number students. E) none of the above answers are correct.

Education is an example of a positive externality: acquiring moreeducation benefits the individual student and having a more highlyeducated work force is good for the economy as a whole.

The accompanying table illustrates the marginal benefit to Sian peryear of education and the marginal cost per year of education. Eachyear of education has a marginal external benefit to society equalto $8,000. Assume that the marginal social cost is the same as themarginal cost paid by an individual student.

a. Find Sian's market equilibrium number of years of education

b. Calculate the marginal social benefit schedule 

Years of Education Sian's marginal benefit per year Marginalexternal benefit to society Marginal social benefit Sian's marginalcost per year

10 $20,000 $8,000 $15,000
11 19,000 8,000 16,000
12 18,000 8,000 17,000
13 17,000 8,000 18,000
14 16,000 8,000 19,000
15 15,000 8,000 20,000
16 14,000 8,000 21,000
17 13,000 8,000 22,000

What is the socially optimal number of years of education?

c. You are in charge of education funding. Would you use aPigouvian tax or a Pigouvian subsidy to induce Sian to choose thesocially optimal amount of education? 

d. How high would you set this tax or subsidy per year of education?

If a positive externality in consumption is present in a market, then

A. the market will at achieve economic efficiency.

B. the private benefit from consumption will be different than the social benefit from the consumption

C. the private cost of production will be equal to the private benefit from the consumption

D. the social cost of production will be equal to the social benefit from the consumption

E. the private cost of production will be different than the social cost of production

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