Map Sapling Learning Policymakers realize that while education creates a positiv
ID: 1228202 • Letter: M
Question
Map Sapling Learning Policymakers realize that while education creates a positive benefit for those who obtain it, it also creates external benefits for the community where the educated individual resides. The figure below depicts the marginal social cost (MSC) and the marginal social benefit (MSB) associated with education. Move the point, P, to the point representing the optimal level of education. 100 What is the socially optimal number of years of schooling for each citizen? Number years 60 S 50 Assuming that the marginal social benefits of education are completely externalized from the educated individual. How large would a Pigouvian subsidy need to be in order to reach this optimal 10 MSB Number 0 4 6 8 10 12 14 16 18 20 22 Years of schooling thousandExplanation / Answer
Optimal level of education will be when MSB = MSC i.e. when marginal social cost is equal to marginal social benefit. MSB intersects MSC at years of schooling = 14 years and cost is 30,000 dollars. So socially optimal years of schooling is 15 years and Pigouvian subsidy needed will be $30000.
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