Most countries today have subsidised the provision of education. We will use the UK as an example country. Let’s say that the UK pays a subsidy of $10 000 per year to each student enrolled in tertiary education. a. Subsidies lead to overproduction and overconsumption relative to the competitive equilibrium. What is the deadweight loss associated with this? Why is there a deadweight loss? Depict this in a figure. b. The original assumption for the UK stated that the marginal private benefit is equal to the marginal social benefit. Now instead assume that the marginal social benefit of tertiary education is greater than the marginal private benefit. That is, assume there is a positive externality associated with having a tertiary education. Draw this in a new figure. Is the deadweight loss from the subsidy increased or decreased with the introduction of the positive externality? Why?
Most countries today have subsidised the provision of education. We will use the UK as an example country. Let’s say that the UK pays a subsidy of $10 000 per year to each student enrolled in tertiary education.
a. Subsidies lead to overproduction and overconsumption relative to the competitive equilibrium. What is the
b. The original assumption for the UK stated that the marginal private benefit is equal to the marginal social benefit. Now instead assume that the marginal social benefit of tertiary education is greater than the marginal private benefit. That is, assume there is a positive externality associated with having a tertiary education. Draw this in a new figure. Is the deadweight loss from the subsidy increased or decreased with the introduction of the positive externality? Why?
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