Externalities
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ab224_unit9_assignment.docx|
Unit 9 |
[Microeconomics] |
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Unit 9 Assignment: Externalities
Name: -
Course Number: -
Section Number: -
Unit Number: - 9
Date: -
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.
|
Quantity of Education (in years) |
Sian’s Marginal Benefit per year |
Sian’s Marginal Cost per year |
|
9 |
- |
- |
|
10 |
$20,000 |
$15,000 |
|
11 |
19,000 |
16,000 |
|
12 |
18,000 |
17,000 |
|
13 |
17,000 |
18,000 |
|
14 |
16,000 |
19,000 |
|
15 |
15,000 |
20,000 |
|
16 |
14,000 |
21,000 |
|
17 |
13,000 |
22,000 |
a. Find Sian’s market equilibrium number of years of education
b. Calculate the marginal social benefit schedule
|
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 |
$8,000 |
|
$15,000 |
|
11 |
19,000 |
8,000 |
|
16,000 |
|
12 |
18,000 |
8,000 |
|
17,000 |
|
13 |
17,000 |
8,000 |
|
18,000 |
|
14 |
16,000 |
8,000 |
|
19,000 |
|
15 |
15,000 |
8,000 |
|
20,000 |
|
16 |
14,000 |
8,000 |
|
21,000 |
|
17 |
13,000 |
8,000 |
|
22,000 |
c. What is the socially optimal number of years of education?
d. 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? Justify your answer.
e. How high would you set this tax or subsidy per year of education? Justify your answer.
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References:
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Unit 9 Assignment: Education a positive externality |
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Content (13 points) |
Points Possible |
Points Earned |
|
Determined Siam’s market equilibrium quantity of education. |
3 |
|
|
Correctly calculated the marginal social benefit schedule. |
2 |
|
|
Correctly calculated the socially optimal number of years of education. |
2 |
|
|
Use a tax or a subsidy to induce Sian to choose the socially optimal amount of education. |
3 |
|
|
Set the tax or subsidy per year of education. |
3 |
|
|
Analysis (7 points) |
|
|
|
Work demonstrates synthesis of concepts, research, and experience. |
3 |
|
|
Work demonstrates the student’s ability to tie relevant information to real-life applications. |
2 |
|
|
Analysis exceeds basic comprehension to demonstrate higher-order thinking. |
2 |
|
|
Writing (5 points) |
|
|
|
Correct use of APA 6th edition format, all sources used to support the paper are referenced. |
2 |
|
|
Sentences are clear, concise, and direct; tone is appropriate, spelling, grammar, and punctuation are correct. |
3 |
|
|
Total |
25 |
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