# How high would you set this tax or subsidy per year of education?

Section Show more Unit 9 Assignment: Externalities Name: Course Number: -BU224 Section Number: Unit Number: 9 Date: Education is an example of a positive externality: acquiring more education benefits the individual student and having a more highly educated work force is good for the economy as a whole. The accompanying table illustrates the marginal benefit to Sian per year of education and the marginal cost per year of education. Each year of education has a marginal external benefit to society equal to \$8000. Assume that the marginal social cost is the same as the marginal cost paid by an individual student. Quantity of Education (in years) Sians Marginal Benefit per year Sians Marginal Cost per year 9 10 \$20000 \$15000 11 19000 16000 12 18000 17000 13 17000 18000 14 16000 19000 15 15000 20000 16 14000 21000 17 13000 22000 Find Sians market equilibrium number of years of education b. Calculate the marginal social benefit schedule Years of Education Sians marginal benefit per year Marginal external benefit to society Marginal social benefit Sians marginal cost per year 9 10 \$20000 \$8000 \$15000 11 19000 8000 16000 12 18000 8000 17000 13 17000 8000 18000 14 16000 8000 19000 15 15000 8000 20000 16 14000 8000 21000 17 13000 8000 22000 c. What is the socially optimal number of years of education? d. You are in charge of education funding. Would you use a Pigouvian tax or a Pigouvian subsidy to induce Sian to choose the socially optimal amount of education? Justify your answer. e. How high would you set this tax or subsidy per year of education? Justify your answer. References: Show less

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