Some economists argue that early child care generates an external benefit to society. Consider the following supply-and-demand graph for early childhood education. A. How does the market equilibrium differ from what is best for society? B. If the government was going to provide a per-unit subsidy in this market in order to achieve the socially optimal outcome, how large of a subsidy would the government ne to provide? C. How much in total would the government need to spend in this market each month to achieve a socially optimal outcome? Price ($ per month) Supply $1,300 $1,200 $1,000 $900 Marginal social benefit Marginal private benefit (demand) 23 26 Quantity (millions per month)

Principles of Microeconomics
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Author:N. Gregory Mankiw
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Chapter11: Public Goods And Common Resources
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Some economists argue that early child care generates an external benefit to society.
Consider the following supply-and-demand graph for early childhood education.
A. How does the market equilibrium differ from what is best for society?
B. If the government was going to provide a per-unit subsidy in this market in order to
achieve the socially optimal outcome, how large of a subsidy would the government ne
to provide?
C. How much in total would the government need to spend in this market each month to
achieve a socially optimal outcome?
Price
($ per month)
Supply
$1,300
$1,200
$1,000
$900
Marginal
social
benefit
Marginal
private benefit
(demand)
23 26
Quantity
(millions per month)
Transcribed Image Text:Some economists argue that early child care generates an external benefit to society. Consider the following supply-and-demand graph for early childhood education. A. How does the market equilibrium differ from what is best for society? B. If the government was going to provide a per-unit subsidy in this market in order to achieve the socially optimal outcome, how large of a subsidy would the government ne to provide? C. How much in total would the government need to spend in this market each month to achieve a socially optimal outcome? Price ($ per month) Supply $1,300 $1,200 $1,000 $900 Marginal social benefit Marginal private benefit (demand) 23 26 Quantity (millions per month)
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