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.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 $10,000 per student imposed on the universities achieves efficiency.
C)10 million students per year is the efficient number students.
D)a subsidy of $20,000 per student paid to the universities achieves efficiency.
E)none of the above answers are correct.

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.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 $10,000 per student imposed on the universities achieves efficiency. 
C)10 million students per year is the efficient number students. 
D)a subsidy of $20,000 per student paid to the universities achieves efficiency. 
E)none of the above answers are correct.

Quizplus · Accepted Answer

The efficient outcome is where MPC (marginal private benefit) equals MSC (marginal social cost) plus the external benefit. In this case, the external benefit is $10,000 per student. Therefore, to achieve efficiency, the marginal private benefit curve needs to shift up by $10,000. A subsidy of $10,000 per student paid to the universities achieves this shift and therefore achieves efficiency.

Use the Figure Below to Answer the Following Questions