The market below exists for obtaining a college degree. The marginal private ben
ID: 1201759 • Letter: T
Question
The market below exists for obtaining a college degree. The marginal private benefit (MPB) curve represents the demand for a college education. The marginal social benefit (MSB) curve represents the additional benefits that an educated populace provides to society at large. Use the following graph to answers parts (a) to (e) of the question: What is the socially efficient price and quantity? What are the external benefits @ the socially efficient equilibrium? (use letters) What is the market equilibrium price and quantity? What are the external benefits @ the market equilibrium? (use letters) What is the total net benefit gain from moving to the socially efficient equilibrium from the market equilibrium? (use letters)Explanation / Answer
(a) The socially efficient price and quantity are the respective price and quantity corresponding to intersection point of MSB curve and MPC curve. The quantity corresponding to intersection point of MSB curve and MPC curve is 6 college degrees while price corresponding to intersection of MSB curve and MPC curve is $150,000 per college degree.
Thus, the socially efficient price and quantity are $150,000 per college degree and 6 college degrees respectively.
(b) The external benefits at the socially efficient equilibrium is traingle represented by letter H.
(c) The market equilibrium price and quantity are the respective price and quantity corresponding to intersection point of MPB curve and MPC curve. The quantity corresponding to intersection point of MPB curve and MPC curve is 4 college degrees while price corresponding to intersection of MPB curve and MPC curve is $100,000 per college degree.
Thus, the market equilibrium price and quantity are $100,000 per college degree and 4 college degrees respectively.
(d) The external benefits at the market equilibrium are traingles represented by letters F and G.
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