Use the figure below to answer the following questions.

Figure 16.3.3
-Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy
A)no students go to university.
B)less than 10 million students go to university.
C)10 million students go to university.
D)more than 10 million students go to university.
E)none of the above.

Question

Use the figure below to answer the following questions.
  
Figure 16.3.3
-Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy
A)no students go to university. 
B)less than 10 million students go to university. 
C)10 million students go to university. 
D)more than 10 million students go to university. 
E)none of the above.

Quizplus · Accepted Answer

In order to achieve the socially optimal outcome, the quantity of university graduates should be where the marginal social cost intersects with the marginal social benefit, which is 10 million students in this case. Without a subsidy, the marginal private benefit exceeds the marginal social cost and therefore less than 10 million students would go to university. However, if a subsidy equal to the external benefit of $10,000 per student is implemented, the marginal private benefit would now equal the marginal social benefit, leading to an increase in the quantity of students to the socially optimal level of 10 million.

Use the Figure Below to Answer the Following Questions