Consider the market for education. The marginal social cost of education (MSC) and the marginal private...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider the market for education. The marginal social cost of education (MSC) and the marginal private benefit of education (MPB) are given by the following equations where Q is the number of units of education provided per year. MSC = 10 + Q MPB = 100-Q You are also told that each unit of education provides an external benefit to society of $10 per unit. This external benefit is currently not being internalized in the market. a. Given the MSC and MPB curves, what is the current number of education units being produced by the market? b. Is the current level of market production for education the socially optimal amount of education? Explain your answer. c. What is the value of consumer surplus (CS), the value of producer surplus (PS), and the value of the external benefits of the current level of production. Sum together (CS + PS + external benefits). Draw a diagram illustrating each of these concepts in the market for education. d. Given the market level of production, what is the deadweight loss in this market? e. Suppose that the external benefit is internalized in this market when the government provides a subsidy of $10 per educational unit to consumers. What will be the socially optimal amount of education to provide given this subsidy? f. Given the subsidy in (e), calculate the value of consumer surplus with the subsidy (CS'), producer surplus with the subsidy (PS'). With the subsidy there are no longer any external benefits that the market fails to account for. Sum together CS' + PS': does this total equal the sum of (CS+ PS + external benefits) + DWL from parts (c) and (d)? Consider the market for education. The marginal social cost of education (MSC) and the marginal private benefit of education (MPB) are given by the following equations where Q is the number of units of education provided per year. MSC = 10 + Q MPB = 100-Q You are also told that each unit of education provides an external benefit to society of $10 per unit. This external benefit is currently not being internalized in the market. a. Given the MSC and MPB curves, what is the current number of education units being produced by the market? b. Is the current level of market production for education the socially optimal amount of education? Explain your answer. c. What is the value of consumer surplus (CS), the value of producer surplus (PS), and the value of the external benefits of the current level of production. Sum together (CS + PS + external benefits). Draw a diagram illustrating each of these concepts in the market for education. d. Given the market level of production, what is the deadweight loss in this market? e. Suppose that the external benefit is internalized in this market when the government provides a subsidy of $10 per educational unit to consumers. What will be the socially optimal amount of education to provide given this subsidy? f. Given the subsidy in (e), calculate the value of consumer surplus with the subsidy (CS'), producer surplus with the subsidy (PS'). With the subsidy there are no longer any external benefits that the market fails to account for. Sum together CS' + PS': does this total equal the sum of (CS+ PS + external benefits) + DWL from parts (c) and (d)?
Expert Answer:
Related Book For
Posted Date:
Students also viewed these accounting questions
-
The Evolution of the Fashion Industry: Consider the market for clothes and suppose there exist 100 different styles that can be produced and can be arranged (and equally spaced) on a circle. Among...
-
Consider the market for high-speed satellite Internet access service, which is a normal good. Explain whether the following events would cause an increase or a decrease in demand or an increase or a...
-
Consider the market for high-definition televisions, which can be expected to grow in popularity over time as consumers become familiar with it and more programs are developed for it. If there is a...
-
Project P costs $15,000 and is expected to produce benefits (cash flows) of $4,500 per year for five years. Project Q costs $37,500 and is expected to produce cash flows of $11,100 per year for five...
-
Use the information in Table (as well as the assumption about foregone income made in the chapter) to compare the opportunity cost of attending a year of college for a student at a two-year public...
-
Globalization can be facilitated only if national governments are willing to participate in that process. What roles can the three major international institutions play to be a part of this...
-
a. Begin with one population and assume that \(y_{1}, \ldots, y_{n}\) is an i.i.d. sample from a Bernoulli distribution with mean \(\pi\). Show that the maximum likelihood estimator of \(\pi\) is...
-
In Problem 12.7 on page 424, you used the plate gap on the bag sealing equipment to predict the tear rating of a bag of coffee. The data are stored in Starbucks. a. Construct a 95% confidence...
-
There are 6 ethical values that marketers are expected to uphold, and these are: Honesty - Be forthright in dealings and offer value and integrity. Responsibility - Accept the consequences of...
-
A shell-and-tube exchanger with two tube passes is used to heat ethanol from 60F to 140F with steam condensing at 230F in the shell. The BWG 14 steel tubes are in. OD. The design overall coefficient...
-
Explain in detail, giving examples, of strict liability for a breach of an implied warrantly and strict liability for breach of an express warrantly as they relate to product liabilty matters?
-
Austin Sound sold inventory for $300,000, terms 2/10, n/30. Cost of goods sold was $152,000. How much sales revenue will Austin Sound report from the sale? a. $152,000 b. $294,000 c. $148,960 d....
-
Which account does a merchandiser use that a service company does not use? a. Cost of Goods Sold b. Merchandise Inventory c. Sales Revenue d. All of the above
-
Which of the following accounts would be included in the property, plant, and equipment category of the classified balance sheet? a. Land (held for investment purposes) b. Accumulated Depreciation c....
-
Your business purchased office supplies of $2,500 on account. The journal entry to record this transaction is as follows: Date a. b. C. d. Office Supplies Office Supplies Accounts and Explanation...
-
What is the order of the subtotals that appear on a multi-step income statement? a. Gross Profit, Operating Income, Net Income, Total Other Income and Expenses b. Operating Income, Gross Profit, Net...
-
The authors suggested that philanthropy stems from Corporate Social Responsibility (CSR) causes, but others suggest that it is not a form of CSR? What do you think and why? To what extent is CSR...
-
The rate at which the temperature of an object changes is proportional to the difference between its own temperature and the temperature of the surrounding medium. Express this rate as a function of...
-
What happens to national saving when the government runs a budget surplus? What is the twin deficits idea? Did it hold for the United States in the 1990s? Briefly explain.
-
What is the meaning of the 45 line in the 45 -line diagram?
-
The following table shows data from the Organization for Economic Co-operation and Development (OECD) on the average number of hours employed people worked per week and on real GDP per capita for...
-
When facilitating the methylation or pseudouridylation of an rRNA, a snoRNA functions as a. a decoy. b. a scaffold. c. a guide. d. both b and c.
-
When an ncRNA functions as a decoy, it a. contains binding sites for many different proteins, thereby promoting the formation of a large complex. b. recognizes other ncRNAs and sequesters them,...
-
Suppose that the overexpression of a particular miRNA was associated with pancreatic cancer. Which of the following agents might be effective in treating this type of cancer? a. Enoxacin b. A DNA...
Study smarter with the SolutionInn App