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Kaplan BU 224 MICROECONOMICS Unit 9 Homework

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Subject: Economics
Due on: 10/14/2014
Posted On: 10/14/2014 05:34 AM

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HOMEWORK - UNIT 9

EXTERNALITIES

Chapter 17 / EXTERNALITIES

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 $8,000. Assume that the marginal social cost is the same as the marginal cost paid by an individual student.

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a.Find Sian’s market equilibrium number of years of education(20pts)

b.Calculate the marginal social benefit schedule(24pts)

Years of Education

Sian’s marginal benefit per year

Marginal external benefit to society

Marginal social benefit

Sian’s marginal cost per year

9

-

10

$20,000

11

19,000

12

18,000

13

17,000

14

16,000

15

15,000

16

14,000

17

13,000

What is the socially optimal number of years of education?(20pts)

c.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? (18pts)

How high would you set this tax or subsidy per year of education?(18pts)

Tags homework unit microeconomics kaplan marginal education benefit year cost years sians social education20pts number society external socially subsidy pigouvian optimal sian externalities individual student 0 1 2 3 4 educated 5 6

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