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 the government offers 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 externalities, the private market already achieves the socially optimal quantity. Subsidies would lead to overproduction, making the equilibrium quantity greater than the socially optimal quantity.

Suppose That an MBA Degree Creates No Externality Because the Benefits