Question: The figure below shows the market for driver education programs. The market demand curve for driver education reflects only the marginal private benefit ( MPB
The figure below shows the market for driver education programs. The market demand curve for driver education reflects only the marginal private benefit MPB that individual drivers receive from the programs. Since this is a market with positive externalities, suppose the government provides a subsidy for driver education programs that is equal to the marginal social benefit MSB minus the marginal private benefit MPB in this case, $ per driver. With the subsidy, the demand curve will shift and become the same as the marginal social benefit MSB curve.
Move the demand curve below to illustrate this shift. Be sure to take the exact size of the subsidy into account. Precise answers are required. Also, make sure to position the point Social equilibrium correctly.
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