The private marginal benefit a person derives from a year of education is given

Question

The private marginal benefit a person derives from a year of education is given by PMB 110-6Q. where Q is the number of years spent in school. The private marginal cost per year of education is given by PMC- 20. There is a positive consumption externality of $18 per year of school attended Which of the following statements is true? The market equilibrium is efficient. In the market equilibrium everyone gets 15 years of education. OIn the market equilibrium everyone gets 18 years of education. In the socially efficient equilibrium everyone gets 15 years of education a and b are true.

Explanation / Answer

In market equilibrium, PMC = PMB

Q =15

Therefore , in market equilibrium, everyone gets 15 years of schooling and at this stage, the market equilibrium is efficient.

Therefore without taking the externality into account, the market is efficient on the whole.

Therefore (d) a and b are true is the answer

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