How does the optimal size of the subsidy for education vary with the size of the (positive) consumption externality? Justify your answer graphically.
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3. How does the optimal size of the subsidy for education vary with the size of the (positive) consumption externality? Justify your answer graphically.
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- Education benefits society as a whole. That is why, among other things, studies at colleges and universities are subsidized: Students pay for the semester ticket, while the state covers the cost of courses, among other things. Assume that the subsidy is paid as a fixed amount per student.4a) What is the form of market failure that economically justifies the education subsidy? Briefly justify your answer.4b) What is the effect of the subsidy and what are its welfare effects? Assume an optimally designed subsidy and give reasons for your answer.4c) Does it make a difference whether the subsidy is earmarked and paid directly to the students or to the respective university? Give reasons for your answer.The figure below shows the market for higher education. The market demand curve for higher education reflects only the marginal private benefit (MPB) that individuals receive. Since this is a market with positive externalities, suppose the government provides a subsidy to consumers of higher education (students) that is equal to the marginal social benefit (MSB) minus the marginal private benefit (MPB), in this case, $8, 000 per student. With the subsidy, the demand curve will shift and become the same as the marginal social benefit (MSB) curve. Move the demand curve below to illustrate this shift. Be sure to take the exact size of the subsidy into account. Precise answers are required. Provide your answer below: 18 16 14 S(MPC) 10 -8 O Market Equilibrium (800,8) Social Equilibrium (800,8) -6 -4- 2- D(MPB) 16001800 1000 1200 Quantity (in thousands of college degrees) -200 0 200 400 600 800 1400 -2 Price (in thousands of $)The local government has decided that because children's health has large external benefits, it will offer a subsidy to help families pay for visits to the pediatrician. However, the government isn't sure at what level to set the subsidy. The figure below shows the current demand curve for pediatricians' visits (D1), and three alternative subsidies, represented by curves D2, D3 and D4. a. Assume that the correct level of subsidy is D3. Compared to the efficient outcome, graph the loss in total surplus that would result from subsidies D2 and D4. b. The socially optimal level of pediatrician visits is __ visits.
- Give an example of an externality. Explain how a tax or subsidy might be used to “correct” for the inefficiency of a market equilibrium in the presence of an externality.The figure below shows the market for driver education programs. The market demand curve for driver education reflects only the marginal private benefit (MPB) that individual drivers receive from the programs. Since this is a market with positive externalities, suppose the government provides a subsidy for driver education programs that is equal to the marginal social benefit (MSB) minus the marginal private benefit (MPB), in this case, $20 per driver. With the subsidy, the demand curve will shift and become the same as the marginal social benefit (MSB) curve. Move the demand curve below to illustrate this shift. Be sure to take the exact size of the subsidy into account. Precise answers are required. Also, make sure to position the point Social equilibrium correctly. Provide your answer below: 65 S (MPC) -50- -45 -40 35 30 Market Equilibrium (150,30) Social Equilibrium (150 30) 25 20- 15- 10- -5 D(MPB) -50 50 100 150 200 250 300 350 400 450 500 -5 Quantity of driver education programs…Define negative and positive externalities and their effect on resource allocation.
- Use the attached image to answer the next three questions. What price and quantity will the firm in the diagram above produce? What’s the socially-optimal price and quantity? In the absence of government intervention, will this firm produce too much or too little?Why is subsidy used to correct market failurea. Does the market provide an efficient amount of effort? b. The teacher of the course is considering to implement a tax-cum-subsidy policy in order to enhance effort in the course. Suppose he seeks advice from you. He proposes to subsidize effort at the rates, meaning that putting G, units of time into working on the problem sets will feel less, concretely, only like putting (1-s)G, units of time. In order to subsidize effort, he will tax students' time at the rate t, so the total available time will become(1-1)W₁. What tax-subsidy combination would you propose in order to implement the social optimum while keeping budget balance?
- The local government has decided that because children's health has large external benefits, it will offer a subsidy to help families pay for visits to the pediatrician. However, the government isn't sure at what level to set the subsidy. The figure below shows the current demand curve for pediatrician visits (MBprivate) and three alternative subsidies, represented by curves Dsubsidy = $30. Dsubsidy = $60. and Dsubsidy = $90 Price $240 $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 0 100 50 S-MC Quantity of pediatrician visits Cial Dubsidy-510 Dobity-360 Dudy-130 private MB 450 500 Tools A. DWL 30 DWL0 a. Assume that the correct level of subsidy is $60. The socially optimal level of pediatrician visits is. visits b. Compared to the efficient outcome, graph the deadweight loss that would result from subsidies of $30 or $90. Instructions: Use the tools provided "DWL 30' and 'DWL 90' to illustrate the deadweight loss for each subsidy Drag the points to move or resize.The table below describes the market for higher education. Higher education confers positive externalities on society, and so the private+social marginal benefits are higher than the private marginal benefits. 2 Quantity 10,000 11,000 12,000 13,000 14,000 Calculate the value of the subsidy that society would need to allocate to higher education in order to achieve the social equilibrium. Express your answer without units (i.e., if your answer is "$500", type "500" in the answer box). Type your answer.... # JOE 3 E W 5 X D 16 20 F3 C $ 4 Private marginal benefits $80,000 $75,000 $70,000 $65,000 $60,000 888 FA R F V % 5 T F5 6 MacBook Air B F6 Y Private+ social marginal benefits $90,000 $85,000 $80,000 $75,000 $70,000 & 7 H F7 tv NA U N * 8 J F8 1 ( 9 K M Marginal costs $70,000 $75,000 $80,000 $85,000 $90,000 O .O. L Aa P zoomOn a generic supply-demand graph, show the deadweight loss ( DWL) of a price ceiling that is placed below the equilibrium price for a product ( you should assume that there are NO externalities associated with the product).
