2. Efficiency in the presence of externalities Education confers many external benefits on society: a higher-paid workforce, more technological innovation, a more informed electorate, and so on. Therefore, the market equilibrium quantity of education is not equal to the socially optimal quantity. The following graph shows the demand for education (its private value), the supply of education (the private cost of producing it), and the social value of education, including both the private value and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. (?) Supply (Private Cost) + Market Equilibrium ◆ Socially Optimal Level PRICE OF EDUCATION PF ostly cloudy Social Value I CI D

2. Efficiency in the presence of externalities Education confers many external benefits on society: a higher-paid workforce, more technological innovation, a more informed electorate, and so on. Therefore, the market equilibrium quantity of education is not equal to the socially optimal quantity. The following graph shows the demand for education (its private value), the supply of education (the private cost of producing it), and the social value of education, including both the private value and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. (?) Supply (Private Cost) + Market Equilibrium ◆ Socially Optimal Level PRICE OF EDUCATION PF ostly cloudy Social Value I CI D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below. If the tenants have the right to be free of loud music enforced through aproperty rule, how many bands will play in Rock‐n‐Roll Bar on a Saturday night? A. ZeroB. OneC. TwoD. ThreeE. It depends on transaction costs