Questions: Question 23 of 24 Attempt 7 A college education creates positive externalities. Use the accompanying graph which represents the hypothetical market for college education to answer the questions that follow. MSB stands for marginal social benefit, MPB stands for marginal private benefit, and MPC stands for marginal private cost. 1. Move point E to the efficient equilibrium outcome. 2. If the government wanted to subsidize college education, how much would it subsidize each student to achieve the socially optimal level of education?

Question 23 of 24
Attempt 7
A college education creates positive externalities. Use the accompanying graph which represents the hypothetical market for college education to answer the questions that follow. MSB stands for marginal social benefit, MPB stands for marginal private benefit, and MPC stands for marginal private cost.
1. Move point E to the efficient equilibrium outcome.
2. If the government wanted to subsidize college education, how much would it subsidize each student to achieve the socially optimal level of education?

Transcript text: Question 23 of 24 Attempt 7 A college education creates positive externalities. Use the accompanying graph which represents the hypothetical market for college education to answer the questions that follow. MSB stands for marginal social benefit, MPB stands for marginal private benefit, and MPC stands for marginal private cost. 1. Move point E to the efficient equilibrium outcome. 2. If the government wanted to subsidize college education, how much would it subsidize each student to achieve the socially optimal level of education?

Solution

Solution Steps

Step 1: Identify the Efficient Equilibrium Outcome

To find the efficient equilibrium outcome, we need to locate the point where the Marginal Social Benefit (MSB) curve intersects the Marginal Private Cost (MPC) curve. This is the socially optimal level of education.

Step 2: Move Point E to the Efficient Equilibrium Outcome

From the graph, the intersection of the MSB and MPC curves occurs at approximately 60,000 students and a price of $60,000 per year. Therefore, point E should be moved to this intersection.

Step 3: Calculate the Subsidy Amount

To determine the subsidy amount, we need to find the difference between the Marginal Private Benefit (MPB) and the Marginal Social Benefit (MSB) at the socially optimal level of education. At 60,000 students, the MPB is approximately $40,000, and the MSB is $60,000. The subsidy per student is the difference between these two values.