Question

Question 30 Not yet answered Points out of 1.00 The table below depicts the MO and MC schedules for a person getting a college education. Suppose society receives a marginal external benefit (MEB) equal to 6 every time an additional persones a college education MB Q MC 18 1 15 17 2 17 P Flag question 13 6 25 The private equilibrium quantity of education corresponds to but the socially efficient level of education is Select one or more: a Q-4 -4 b. Q-2:Q-4 E CQ-4:Q-2 d.Q-1:04 c. Q-3;Q-5.

Answer 1

Answer

Option b) Q-2 ; Q-4

Reason:

Note the formula for equilibrium when there is a Marginal External Benefit is:

Marginal External Benefit + Marginal Private Benefit = Marginal External Cost + Marginal Private Cost

Thus, Marginal Social Benefit = Marginal Social Cost

The private equilibrium quantity of education corresponds to 2 units. This because at this point, both Marginal Private Cost and Marginal Private Benefit are equal. (which is 17)

The socially efficient level of education corresponds to 4 units. This because at this point, both Marginal Social Cost (which is 21) and Marginal Social Benefit (which is 15 + 6) are equal.