The figure below shows the market for driver education programs. The market demand curve for drivereducation 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 fordriver 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 themarginal 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:65S (MPC)-50--45-403530Market Equilibrium (150,30)Social Equilibrium (150 30)2520-15-10--5D(MPB)-5050100150200250300350400450500-5Quantity of driver education programsPrice per education program

Answered: The figure below shows the market for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

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
Price per education program

Expert Solution

Step 1

The positive externality states that the production or consumption of a particular goods or services benefits the third party those who are not directly involved in the economic transaction. For example, getting an individual's education will benefit society as a whole.

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions