Homework Answers
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.
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