Suppose that elementary education creates a positive externality. If the government does not subsidize education, then
A)the equilibrium quantity of education will be equal to the socially optimal quantity of education.
B)the equilibrium quantity of education will be greater than the socially optimal quantity of education.
C)the equilibrium quantity of education will be less than the socially optimal quantity of education.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

When there is a positive externality, the market tends to produce less of the good or service than is socially optimal. In this case, without government intervention, the equilibrium quantity of education will be lower than the socially optimal quantity. Therefore, choice C is the correct answer.

Suppose That Elementary Education Creates a Positive Externality