Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?
A)The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
B)The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs.
C)The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

If there are no government subsidies for MBAs, the cost of obtaining an MBA degree will be fully borne by the student. As a result, the number of students who are willing to obtain an MBA degree will be exactly equal to the number of students for whom the expected return from obtaining an MBA degree is greater than or equal to the cost of obtaining the degree. This is the socially optimal quantity of MBAs because the benefits of an MBA are fully internalized by the student, and there are no positive or negative externalities associated with obtaining an MBA degree. Therefore, the equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.

Suppose That an MBA Degree Creates No Externality Because the Benefits