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 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

If education creates a positive externality, then the private marginal benefit of education (the benefit received by the individual who gets education) will be less than the social marginal benefit (the benefit to society as a whole). As a result, the equilibrium quantity of education in a market without government intervention will be less than the socially optimal quantity. To achieve the socially optimal outcome, the government needs to provide a subsidy to increase the quantity of education to the socially optimal level.

Suppose That Elementary Education Creates a Positive Externality