need help thank you Refer to Figure 5-B. Suppose that education provides spillov

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need help thank you

Refer to Figure 5-B. Suppose that education provides spillover benefits to the community as illustrated in the diagram. Based on this information, we can say that: the socially optimal quantity of education is Q1 units. the socially optimal quantity of education is Q0 units. education is overproduced by Q1 minus Q0 units. the market would fall short of the desirable level of education, Q0. Refer to Figure 5-B. The area bounded by what letters represents the associated efficiency loss resulting when there are external benefits associated with education? Q0, c, b, Q1 O, P1, b, Q1 O, P0, a, Q0 a, b, c

Explanation / Answer

Remember the social optimum always makes use of demand with external benefits...so this means that our social optimum would be at Q1. For the second one, quick rule of thumb - efficiency losses are almost always a triangle. Here we know its triangle abc. Why? Well because we are missing out on benefit with area Q0cbQ1 from underproducing. However if we produced more we would see extra costs Q0abQ1. THat means triangle is abc is the net increase in welfare from increasing output to Q1.

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